Investment bonds to the rescue?

By Killian Plastow

July 21 2017
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Recent political changes have made superannuation less tax effective for some Aussies, but some experts suggest insurance bonds could alleviate the tax pressures.

Investment bonds, insurance bonds, Austock, Centuria, Neil Rogan, Richard Atkinson, retirement management, retirement planning, superannuation, super tax, tax effectiveness

Changes to the superannuation system which were announced in last year’s federal budget came into effect on 1 July of this year, and for some Australians this means super could no longer be the most tax effective way to save, according to Neil Rogan, who heads up the investment bonds division for fund manager Centuria.

“Looking ahead and planning now is crucial, even though super remains one of the most tax-effective ways to save for retirement – if you are able to stay within the contribution limits and caps,” he wrote in an article for Nest Egg sister publication ifa Magazine.

“If you can’t or don’t want to, it’s worth considering other tax-effective options available.”

Investment bonds (which ASIC’s MoneySmart site notes are also sometimes called insurance bonds or growth bonds) are one avenue through which wealthier Australians can become more tax effective.

“An investment bond is an insurance policy with a life insured and a nominated beneficiary,” he said.

“It is a tax-paid managed fund. Investors can choose to invest in a range of investment options depending on their risk profile ranging from Australian shares to cash.”

Richard Atkinson, an executive with investment bond provider Austock Life, explained that these products can provide “valuable tax rate arbitrage benefits” to investors as they pay tax annually at a maximum rate of 30 per cent, which can be lower than some investors’ higher ongoing personal marginal tax rate.

“Investment Bonds provide unrestricted access to benefits with no preservation age, retirement or purpose test required,” he said.

Additionally, withdrawals can be made from these bonds at any time, and while withdrawals will be fully taxed for the first eight years, only two-thirds of the taxable component of earnings is payable in the ninth year, only one-third in the tenth, and after 10 years they are considered a tax-free receipt.

“Investment bonds also have the added flexibility of being able to be transferred to another person or entity with the original investment date carrying over for the purpose of the 10-year period,” Mr Atkinson said.

These strategies also allow investors to use a number of investment portfolios to create the bond’s investment mix, which can be changed at any time to meet changing markets without incurring personal or capital gains tax, Mr Atkinson said.

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Retirement