Seven reasons why investment bonds could be an alternative to superannuation for your investment dollars

An investment bond, also known as an insurance bond, offers a tax-effective way to invest for the future.

They combine many of the features of a managed fund and superannuation, but with the benefits of investment earnings being taxed at a maximum of 30%, and access to funds being available at any time. They can also be held by trusts.

Investment bonds can serve a wide range of purposes such as tax-effective wealth creation, tailored investments, family savings planning, retirement planning, estate planning, and asset protection.

Here are seven reasons why investment bonds could be an alternative to superannuation:



1. Investment bonds give you the flexibility to access your funds at any time

Many people are now restricted by superannuation contribution caps and condition of release rules. Unlike superannuation, the funds invested into investment bonds are not locked in until preservation age or retirement, so funds can be withdrawn as needed at any time.

It is important to note however that the tax advantages of investment bonds are lessened if they are withdrawn within a 10-year period.

Investment bonds can supplement superannuation. They may be particularly beneficial for:

  • high-income earners looking to maximise tax efficiencies
  • retirees in need of a tax-paid income stream
  • family trusts looking for growth only investments
  • families wanting to save for young children
  • people wanting more asset protection for their investments, and
  • people wanting more certainty in their estate planning arrangements.

2. Investment bonds offer a tax-effective investment solution

Investment bonds are favoured by some high-income earners and family trusts as a tax-effective wealth growth strategy. There is no distributable income that attracts personal marginal tax rates.

Investment bonds have tax paid on their investment earnings at 30%. This is the maximum rate of tax applicable to investment earnings or capital gains, although the actual rate could be lower depending on the level of imputation tax credits generated from the underlying investments (i.e., from Australian Shares).

Furthermore, there is no personal capital gains tax for the investor. This is a clear benefit if you were to change investment options or transfer the ownership of the investment bond.

Investment bonds can also be redeemed tax-free if you have held the bond for at least 10-years.

Each investment year, additional contributions of up to 125% of the previous year’s contributions can be made without re-setting the 10-year period.

If redemptions are made before the 10-year period, a tax offset is applied to any applicable tax that may need to be paid.

3. Investment bonds can be tailored to your investment options

Investment bonds can be tailored to suit specific personal needs. This includes investment options and beneficiary nominations. You can choose from various investment options across a range of asset classes, such as property, shares, fixed interest or cash. Switching between these investment options can usually be done without triggering a personal capital gains tax event,  and transfer of ownership is permissible within certain criteria.

4. Investment bonds can be held by trusts

Investment bonds can be held by trusts and can provide a tax effective investment option, as the income is not distributed annually. The investment bonds and can also be withdrawn free of tax once the rules of the bond have been satisfied (being the 10-year period and 125% rule).

5. Investment bonds offer options for investing on behalf of children

Investment bonds can be used as a tax effective savings plan for children or grandchildren. The investment bond is like a managed fund and can be established with a one-off contribution or regular ongoing contributions.

Income tax for children can range between 45% and 66%. Investment bonds offer an attractive alternative, as they are taxed up to a maximum rate of 30%.

The owner of the bond can also nominate the age at which the ownership of the bond transfers to the child.

6. Investment bonds can offer bankruptcy protection

Investment bonds may offer protection from creditors in the case of bankruptcy (subject to certain rules). This protection may not be possible through a company or other investment structure.

However, transfers into investment bonds to intentionally defeat creditors will be ‘clawed back’ and may be divisible among creditors.

7. Investment bonds can be a part of your estate planning

Investment bonds allow for the nomination of beneficiaries. This allows investors to keep the proceeds of an investment bond separate from their estate assets. This is similar to superannuation, but with the benefit of no restrictions on who can be a beneficiary.

Need help?

Before considering investing in an Investment/Insurance Bond, it is highly recommended that you seek financial advice from a qualified advisor, and also that you refer to the applicable Product Disclosure Statement (PDS).

Contact your Bentleys advisor – we’re here to help you get where you want to be.

Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.

General advice warning

The information on this website and in the articles provided are general information only and do not take into account your personal objectives, financial situation, or needs. It should not be relied on as legal or taxation advice, and it does not take the place of this type of advice. You should also read the relevant Product Disclosure Statement and Financial Services Guide before making any financial decisions.

You should consider the appropriateness of the information in light of your own objectives, financial situation, or needs before acting on it by reading a copy of the Product Disclosure Statement (PDS) and, where necessary, seek professional financial advice tailored to your personal circumstances.