Bonds provide flexibility for younger savers

12 January 2017

Publication: Financial Observer
Sydney, 12 January 2016

Bonds provide flexibility for younger savers

Changes to superannuation tax concessions are driving an investment bond renaissance for advisers, who were also discovering the bonds could be used as flexible savings vehicles for generation X and millennial clients, according to Centuria Life.

Speaking to financialobserver, Centuria Life general manager of investment bonds Neil Rogan said while the onset of the superannuation changes had initially provided the catalyst for advisers to take another look at investment bonds, they were discovering a multitude of other uses for the products outside of simply being a replacement to super for retirees.

“For investors who want to start with a modest amount something like an investment bond may be ideal for them,” Rogan said.

“It’s accessible, there is flexibility around it and it provides another bucket of money alongside super and the family home or mortgage.”

With a minimum investment of just $500, investment bonds could easily be set up as a savings vehicle for younger clients who were looking at medium-term savings goals such as paying their children’s school fees or taking a ‘mature age gap year’ in their mid-40s, Rogan sugested.

“By starting a bond when their child is two, by the time they are in high school a client can access money where the tax has already been paid to be able to fund the child’s high school years,” he said.

“Professional millennials in particular appreciate the control and autonomy of a bond – it’s easier for them to see a savings goal that would take shape when they are 40 or 50 instead of thinking about what they are going to do when they are 65.”

With the removal of tax concessions on the popular transition to retirement (TTR) strategy on 1 July, clients in their mid-40s could also consider setting up an investment bond as a TTR alternative, Rogan explained.

“We’ve gotten a lot more inquiries from advisers wanting to understand how investment bonds could be used as an income stream prior to reaching preservation age,” he said.
“If a client is in their 40s and starts an investment bond, by the time they are 55 they can start making partial withdrawals out of that bond – it doesn’t form part of your tax return and the tax is paid on your behalf as it comes out.”

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