The 2016 Budget and whatever the outcome of July’s 2016 Federal Election – inevitably points to a major redesign of super concessions aimed at lessening their attraction to higher income and wealthier clients.
In my opinion, the Government and Opposition seem on parallel policy paths to peel back the superannuation system to fit so proffered new policy objectives of super. These objectives draw heavily on last year’s Financial System Inquiry (Murray) Report2 – and at their core have the notion that New Super is for building only a moderate, and not necessarily comfortable, retirement nest-egg.
It’s not so much the core policy objective that is important – but New Super’s Non-Objectives.
Besides the obvious – that “super is not for tax minimisation” – its Non-Objectives, such as super “not being an uncapped wealth accumulation vehicle, not for estate planning, and not for inter-generational wealth transfers” – that will seriously upgrade the future of alternate structures (such as Investment Bonds) in Australia. This, of course is because these Non-Objectives of New Super are exactly the things for which Investment Bonds are designed, in their remarkably stable legislative and tax-friendly environment.
Personal Wealth Accumulation Vehicles Outside Super
The tenor of the Budget, now followed up in the Government’s stated election policy is that savings outside of super will be encouraged as the Third Pillar of Australia’s retirement incomes system. With overtones of a product “in the right place at the right time”, Investment Bonds are the next best, and indeed only alternative tax-effective investment framework to superannuation.
Importantly, as against how New Super is shaping up, Investment Bonds will be at the forefront of the alternatives (or supplements) because they offer:
- completely uncapped contribution limits for lump sum investments, and without constraints on their growth (whether by income or capital);
- attractive and progressively increasing contribution caps for ongoing additional contributions under the 125% Rule;
- unrestricted access at any age and for any purpose;
- versatile tools for estate planning and making inter-generational wealth transfers – these can be flexibly structured as Estate and/or “protected” Non-Estate arrangements; and
- a stable, soundly legislated and tax-friendly environment.
As such, Insurance Bonds will be ideally placed to make up for New Super’s inevitable shortcomings and shortfalls in funding a comfortable life in retirement.
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