For the first time in a long time, the recent Federal Budget didn’t contain any major changes to superannuation – a welcome respite to Australians who want certainty when planning for their future retirement, and for their advisers.
There is no doubt that superannuation serves an important purpose. At last count Australians had $3.5 trillion invested in super, and their superannuation account balances go a long way to ensuring that Australians can look forward to receiving a retirement income that is also likely to have tax advantages.
But it is not the only tax advantaged way of saving for retirement.
Investment bonds have the unique advantage of offering a lower tax rate than almost any other investment option, outside of superannuation. It is a result of their heritage in the friendly society space and offers a number of distinct benefits to Australians.
For people who have reached their superannuation contribution limits but have additional funds that they would like to put towards their retirement, investment bonds offer a very flexible tax advantaged approach.
Investment bonds have a maximum tax rate of 30 per cent on earnings in the bond, so for people on a higher personal tax rate, it is very tax effective. Furthermore, investors do not have to pay any personal tax on the money invested or the interest while funds remain invested.
If the bond is held for 10 years or more, any withdrawals from investment bonds after that period are not liable for personal income tax and are not required to be included in tax returns.
For those concerned about locking their money away in superannuation, or about the impact of future legislative changes, or even for those who have reached their contribution caps and are looking for another savings options, investment bonds are a good alternative.
Unlike super, they have the advantage of allowing people the flexibility to access the funds whenever they wish, subject to certain investment requirements being met.