As 2024 ramps up into gear, we’ve been reflecting on the significant moments of and lessons from 2023. At Generation Life, we believe it is important to learn from the lessons of the past and take a moment to recognise the big achievements that we can continue to grow well into this new year.
2023 saw us proudly offer Australians some of the most flexible investment bond and lifetime annuity options in the market, deepen valued relationships with over 2000 financial advisers nationwide, celebrate 10 industry award wins, launch our CPD-accredited Financial Standard Guide to Tax Aware Investing and most recently our ‘Reimagining Legacy’ report.
2023 was undoubtedly a challenging financial year globally, and we unfortunately expect pressure to continue into the first part of this year. Here in Australia, politicians, financial advisers, businesses, and consumers were navigating a cost-of-living crisis, landmark superannuation policy proposals, spiking interest rates, all while considering how to best action the Retirement Income Covenant, and the large superannuation balances tax on the horizon.
We are extremely pleased to report that the average performance for the last 12 months of our Tax Optimised investment series which offers our investors significant and unprecedented tax alpha, was 10.83% on a pre-tax basis and 8.27% on an after-tax return basis. This equates to an additional 1.04%p.a. in tax alpha, (for an investor on a 30% marginal tax rate). For clients on a 47% marginal tax rate, this was even higher at 2.56% additional tax alpha.
At Generation Life, our investment performance considers the tax paid on income annually with the impact of tax for an investor upon withdrawal when we would sell down fund assets. Investors will pay no further tax in their personal tax return if their investment bond is held for at least ten years.
At Generation Life, we are focused on continually reviewing portfolios’ returns while also reviewing taxes and costs, so after-tax outcomes for our investors can improve.
In this environment, we will continue to help financial advisers’ offerings to clients of innovative, tax-effective, and flexible investment solutions with confidence. So, what were the learnings we take forward?
We know that retirement is an emotional journey, not just a financial decision. With the Retirement Income Covenant driving home how few Australians feel confident their superannuation will last their retirement and older years, last year we enhanced our investment-linked lifetime annuity, LifeIncome, to overcome this retirement spending fear and paralysis.
Many Australians arrive at retirement with significant capital but no ability to manage it, or plan how they’ll spend it, effectively. They are constantly teetering on the outskirts of different worries - can their super fund the retirement lifestyle they always wanted; will they have money left over to pass onto their families; could they run out of money? Without the right tools and education, their reward for 40 years of saving may not be less financial uncertainty, but more.
As a result, many retirees only draw down the minimums from their super, lacking the confidence to spend, and worrying about running out of money. Once they reach the later years of retirement they then sadly look back and feel a sense of regret from being overly frugal in the earlier years.
At Generation Life, we coined this phenomenon ‘regret risk'.
In response to the increasing number of people we saw fighting this fear, and to remove regret risk from Australia, Generation Life’s LifeIncome delivers a lifetime-linked source of income, and delivers more certainty, flexibility, and choice for retirees to plan and meet their retirement goals. It is designed to optimise the level of income in retirement and complement other retirement solutions, like an account-based pension.
LifeIncome pays a regular income guaranteed for life that’s linked to the performance of chosen investment option(s), which can be switched at almost any time. It also allows individuals to access more income in the earlier stages of their retirement, so they have more to spend during their more active golden years.
Innovation in the sector will be key this year to ensure we keep up with the growing needs of Australians planning for their retirement.
With 5 million Australians in or approaching retirement, it also became clearer than ever how important advisers are to ensuring the nation can enjoy the happy retirement they deserve.ᵃ
The superannuation sector is experiencing its biggest shake-up in a decade and can no longer be relied on as a “set and forget” retirement solution.
This is where tax aware investing comes in.
Superannuation is certainly a form of tax aware investing, but for those currently with or nearing $3m or more in their super, they are about to experience the effects of this shake-up, with super reforms leading to a possible $80,000 increase in tax paid per year.ᵇ
In response to these changes, we have changed the tax aware investing landscape with a new generation of investment bonds. Our award-winning Tax Optimised investment series, helps to create tax alpha without taking on any additional investment risk. Our investment bonds and tax-optimised investment options might be the answer for anyone hoping to accumulate wealth in a tax-effective way. While also reducing the impact on tax returns, bringing the tax rate down for people impacted by the super changes.
The retirement space is ever-changing and increasingly complex though, so when considering tax aware investment options, Australians must consider using a trusted and experienced adviser to take them through their options and the always evolving industry changes, leading them to solutions that deliver exceptional retirement outcomes.
Recent research from Generation Life found Australians who seek professional advice have greater retirement confidence, yet we know only 10 percent of Australians are working with an adviser. As well,77 percent of Australians have wealth goals - with saving for a happy retirement coming out top - but almost a third haven’t achieved any of them, largely due to a lack of professional support.
With an incoming ‘silver tsunami’, as Australia’s ageing population will reach retirement over the coming years, speaking with a financial adviser about the tax-aware investment solutions that can help them meet their lifestyle needs has never been more crucial.
In Australia, we’ve reached a generational turning point. 2021-2027 represents the peak of the Australian Baby Boomer retirement surge.ᶜ Last year, we doubled down on supporting them to build, preserve, transfer, and protect their legacies. As a father, I often ponder what my legacy will look like, and personally seek to leave a legacy that ensures my loved ones will be able to fulfil their goals and aspirations with my help, even when I am no longer with them.
The report we released, ‘Reimagining Legacy’, shows that we weren’t the only ones thinking about legacy. We uncovered that two-thirds of Australians are confident they’ll leave a legacy for future generations, but only 14 percent have a plan to do so.
We shared our findings (and solutions) by hosting financial adviser masterclasses and media roundtables and releasing an educational guide for all financial advisers around Australia so they can help their clients confidently leave a legacy. We are pleased to share that this guide also now earns advisers, who read it and complete a short survey afterward, with two CPD points.
Financial advisers are chronically underused in Australia but are an essential driver for building a diverse financial strategy that funds a dignified retirement, while ensuring a proud legacy is straight-forward and tax-effective. Advisers are optimally placed to not only look at clients’ financial needs but support emotional decisions and build a holistic plan that delivers the best financial outcomes.
At Generation Life, we are proud of the role we play in protecting retirements and preserving legacies. In 2024 and beyond, we are focused on continuing to provide tax-effective investment solutions, like investment bonds and lifetime annuities, that help Australians at every stage of life to plan for and protect their financial futures. We look forward to working closely with our network of advisers and providing more educational content this year as the landscape continues to shift and evolve.
Grant Hackett OAM
Chief Executive Officer at Generation Life
ᵃTreasury Modelling, Delivering better financial outcomes – a roadmap for financial advice reform
ᵇInternational Centre for Financial Services, Evaluation of the proposed changes to superannuation tax concessions, 2023
ᶜCore Data 2023
Other than in relation to Generation Life’s investment bonds and LifeIncome, factual information only is provided and is not intended to imply any recommendation or opinion about superannuation products or superannuation investment.