Time to consider your super alternatives
2017 brings the biggest changes to the retirement system in 10 years. The recent changes in age pension, and now superannuation rules significantly shift the goal-posts impacting, over 1 million Australians. Andrew Meinel, General Manager Financial Services at KeyInvest, discusses using investment bonds as a complimentary retirement savings vehicle.
Financial Advisers are at the front line of developing financial strategies in the best interests of their clients. The changes to the age pension asset test in January, and the changes to superannuation rules that commence 1 July 2017, will again provide the opportunity for financial advisers to demonstrate the value they can add to their clients.
The rule changes clarified that superannuation is neither an estate planning tool nor a wealth creation tool. Translated this means superannuation tax benefits will only be available to fund an individual’s retirement. Go beyond this and it’s “user pays”. The result, amongst the many changes, are lower concessional caps, caps on amounts transferred to tax-free retirement pensions and changes to transition to retirement rules. So what do you do when you hit a limit in superannuation?
We have in Australia a financial product that has significant similarities to superannuation yet is more flexible and may be the perfect product to complement superannuation.
Investment Bonds are a tax-paid investment that allows nomination of beneficiaries, has creditor protection and a broad range of investment options - all features of superannuation. The key difference is the tax-paid rate. Investment Bonds have many other benefits, however, as can be seen in the table below.
| Feature | Superannuation | Investment Bonds |
|
Tax rate |
Tax-paid 15% in accumulation. Tax-free in pension phase |
Tax-paid 30% |
|
Accessibility |
Must meet a condition of release e.g. retirement age | Access at any stage |
|
Contribution limits |
Concessional cap $25k (now with possible access tio a 5 year catch up) Non-concessional cap $100k | No limit. Must satisfy the 125% rule |
|
Beneficiary nominations |
Limited to SIS Act definition of dependant | Anyone can be a beneficiary |
|
Tax on death |
Potential 17% tax on the full taxable component paid to non-dependants e.g. a financially independant adult child | Tax free on death |
|
Trustee discretion |
Yes | No |
|
Creditor protection |
Yes | Yes |
Investment Bonds have flexibility not found in superannuation. They are worth a re-look given a tax-paid 30% outcome may just be the next best after tax return for many clients and estate planning outcomes can drive further benefits.
For more information go to http://www.keyinvest.com.au/financial-services/life-events-bond/alternative-to-superannuation or call KeyInvest on 1300 658 904.
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