Insurance bonds open door to tax minimisation

1 June 2015

Investors seeking tax-effective investment strategies outside of superannuation should seriously consider insurance bonds as a long-term wealth creation option, recent research from Rice Warner shows.

The recent insights took into account the political and economic environment and investors’ current preference for risk-averse, tax-effective investment strategies, and compared different investment alternatives over the long term.

According to Neil Rogan, Centuria Life General Manager, there’s no questions that the tax-advantaged nature of superannuation makes it imperative that Australians contribute as much as possible to their super fund.  At the same time, investors who have reached their concessional limits would be well-advised to consider other options.

“High net worth and high income earners have any number of alternatives to choose from, but they should remember that some investments outside of super are more tax-advantaged than others, and those are the options we really wanted to identify,” Mr Rogan said.

Mr Rogan went on to say that there is no guarantee that the current rules governing the tax treatment of superannuation will remain unchanged. It is also possible that the recommendations of the Tax White Paper and Financial System Inquiry may lead to alterations in the current system.

“The bottom line is that the current tax advantages, concessional limits and even the taxation on super balances may not stay the same, so investors who are serious about safeguarding their retirement need to inform themselves about what else is on offer,” Mr Rogan explained.

Xxxx from Rice Warner found that insurance bonds provide the dual benefit of allowing access to savings before the superannuation preservation age, while at the same time offering a tax-effective investment return. Investors can contribute additional funds to an insurance bond each year, and if the bond is held for 10 years, earnings are only ever taxed at the corporate tax rate of 30%.

“Over a ten year period, that can make a substantial difference to investment outcomes, both in terms of the amount of money investors have to spend each year prior to accessing their superannuation savings, but also to the absolute after-tax return on investment.

An example put forward by Rice Warner showed a couple who are both aged 45 already contributing the maximum $30,000 concessional contributions to their superannuation fund, with $500,000 savings and the ability to contribute a further $100,000 a year for ten years will have $123,000 more income after 10 years from an insurance bond than if they had invested through a managed fund.

“When compared with other options outside of super, such as holding investments personally, in a company structure or in a family trust, insurances bonds will result in bigger savings balances,” said xxx.

In conclusion, Mr Rogan said that all Australians should be considering their investment portfolio in light of recent and ongoing discussions around superannuation and the tax system.

“There’s no question that superannuation remains a pivotal investment option for all Australians, but for investors considering additional strategies outside of super, insurance bonds really do tick all the boxes in terms of flexibility and tax-effectiveness,” Mr Rogan said.