Alternative / Complementary Superannuation Strategies
New restrictions on how much you can invest in superannuation on a concessional basis, as well as the fact that money in superannuation is locked up until retirement, are extra incentives for investors to look for other potential tax-effective savings options.
Whilst superannuation does have a superior lower-taxed environment, there are trade-off rules governing exactly when and how much can be invested, as well as access restrictions until retirement after the preservation age of 55 – 60 years.
Insurance Bonds have regained support in recent times due to the tax-effective solutions they can deliver across a broad range of financial planning strategies, which include complementing an existing superannuation strategy.
Investment earnings in Insurance Bonds are taxed at a maximum rate of 30%. However, depending on the underlying investment option chosen by an investor they may be even more tax-effective due to various tax benefits for the issuing life office (including imputation benefits) the end result can be an effective tax rate as low as 20% for investors.
While this is higher than the earning tax rate of 15% inside super – your money in an Insurance Bond is generally accessible at any time.
For some higher taxed investors an Insurance Bond can be an attractive, accessible alternative to non-compulsory superannuation contributions. For others, they might be used to supplement superannuation in retirement, or as a vehicle for funding life-event objectives which will occur pre-retirement.
Insurance Bonds do not have superannuation’s restrictions such as:
• contribution caps limits (Insurance Bonds do not have aged based/work-test contribution restrictions)
• restrictions that generally apply to using superannuation as loan security for gearing strategies (such restrictions do not apply to Bonds).
Monies coming out of the superannuation system via annuities and pensions often cannot be re-contributed back into super. These ‘exited’ monies can accumulate in bank accounts and may cause annual income tax problems or perhaps have an unfavourable impact on qualification thresholds say for a Commonwealth Seniors Health Card. Insurance Bonds can be an attractive repository investment vehicle for such exiting superannuation income streams.
As well as the competitive tax treatment of these investment structures, the ‘new breed’ Insurance Bonds which are now available in the market allow investors to access a broad range of underlying investment options, including some of Australia’s best wholesale managed funds. They operate like a master fund under a tax-paid investment environment, which substantially enhance the performance capabilities of Insurance Bonds. A valuable feature of an Insurance Bond is that you can modify your investment strategy without triggering a personal tax or CGT liability.
Australia’s ‘simplified’ superannuation system has indeed opened up opportunities to use Insurance Bonds as an accessible and flexible alternative and/ or complementary strategy to existing superannuation strategies.
To find out more about this opportunity, please contact Chan & Naylor Financial Planning on 1300 99 77 34.