The super funds’ collective willingness to pay inflated prices for bank shares is starting to make them look like outliers. With about 30 per cent collective ownership of the banks, APRA sees “stability risk” as a salient concern for all stakeholders that can’t be ignored.
The inertia that rules the retirement system means bigger ideas are needed if members are going to get the best outcome in retirement. And with millions set to retire in the next few years, time is of the essence.
Investment bonds gaining popularity as a gift to help younger generations: KeyInvest
Investment bonds aren’t the usual stocking stuffer, but as a financial security mechanism with extraordinary tax benefits they could be the perfect Christmas gift according to Craig Brooke, chief executive at independent member-owned mutual society, KeyInvest.
The festive season may also be a good time for financial advisers to consider introducing their clients to the benefits of investment bonds, he says, especially if those clients are grandparents who want to create a lasting legacy for their grandchildren.
“In a year where many families have experienced a cost-of-living crisis, a gift that eases the financial burden and gives younger generations a head start will be well received,” Brooke says.
“Property prices have continued to rise as demand outpaces supply, with Australia’s population projected to increase to 40 million by 2050. This places further pressure on housing supply and affordability, with these challenges making it increasingly difficult for younger generations to enter the property market and highlights the importance of forward-thinking financial strategies.”
A further significant “pressure point” for families is education funding, he continues, with KeyInvest data showing the cost of a public school education averaging $70,000 and private schooling exceeding $500,000. “These costs will only continue to increase,” he adds.
By setting up an investment bond for a loved one’s future, they have a savings lump sum that benefits from the triple benefits of preferential tax treatment, compounding returns and further contributions. Investment growth within the bond structure is taxed at a maximum rate of 30 per cent but paid by the bond provider, not the holder. No personal tax or tax office reporting related to the bond is required from the bond holder.
Importantly, after being held for 10 years withdrawals from the bond do not incur any additional personal tax. And unlike superannuation contributions, there is no limit to the amount that can be put into an investment bond in the first year.
It’s worth noting, however, that to retain tax-paid status, further contributions each year can only total 125 per cent of the previous year.
There is also a ‘child enhancement’ option, whereby a ‘living legacy’ is provided for children which helps facilitate ‘giving while living’. A vesting age for the nominated individual is put forward (up to the age of 25) and at that date the policy is transferred to them; until then the parent or grandparent maintains full control while having access to the funds if required.
Increasingly, Brooke says, investment bonds are being used by families as a way to financially help younger generations.
“For grandparents who have decided to make this investment, it’s extremely reassuring to know that wishes will still be met even if they have passed away,” he says. “Remember, too, these bonds can have more than one beneficiary to ensure an equitable outcome for all grandchildren.”
