The prospect of the introduction of the Division 296 tax on super has driven significant inflows into investment bonds as advisers and their clients seek alternative vehicles for retirement savings, according to an investment solutions provider.
Since the announcement of the proposed Division 296 tax in November 2023, Generation Life has seen 57 per cent growth in inflows into its investment bonds from December 2023 to March 2025.
Generation Life chief executive Felipe Araujo said the proposed impost, which will apply an extra 15 per cent tax on superannuation earnings for balances above $3 million, has required financial advisers and their clients to rethink how super fits into their wealth accumulation plans and how best to transfer that wealth to the next generation.
“Many are turning to investment bonds as an alternative or complementary solution to help mitigate the effects of both the proposed Division 296 tax and death benefits tax where taxable component benefits are paid to non-dependants,” Araujo said.
Generation Life, which also offers a tax-effective equity income fund and an investment-linked lifetime annuity, works primarily with financial advisers and Araujo said over the past 12 months it had seen a notable increase in technical case queries from advisers.
“Many are inquiring about alternative strategies to manage the impact of the proposed Division 296 tax and the superannuation death benefits tax and how investment bonds can be used to help with these issues,” he said, adding these products provide a tax-effective structure to build wealth that can be passed onto the next generations.
“We anticipate that Australians will start exploring alternative investment structures [to superannuation].”
At the end of the March quarter, Generation Life reached over $4 billion in funds under management, achieving record quarterly sales of $239 million, up 55 per cent on the previous quarter.
“As legislation continues to evolve, it is more important than ever to diversify financial and wealth accumulation strategies,” Araujo said.
“Investment bonds, for example, offer tax advantages, flexibility and estate planning benefits – along with the current certainty that they won’t be affected by legislative reforms – making them a compelling option for those impacted by the changing legislative landscape, both now and in the future.”
