Investment bonds have regained their status as an alternative place to hold retirement income for superannuants impacted by the proposed Division 296 tax, but offer more flexible estate planning, according to one product provider.
Generation Life head of product and operations Vincent Stranges said government plans to introduce the tax on earnings for balances over $3 million had seen a resurgence in interest around investment bonds from advisers and super fund members.
Stranges pointed out that following 57 per cent growth in inflows to investment bonds offered by Generation Life from December 2023 to March 2025, the firm had recorded sales of more than $1 billion for the past financial year, a 55 per cent increase over the previous 12 months.
“Before superannuation existed in the mainstream, investment bonds were the go-to vehicle because they were the most tax effective and paid zero tax, but this was changed to 15 per cent and then eventually pegged to the 30 per cent corporate tax rate,” he told selfmanagedsuper.
“However, we like to think that what Division 296 has done, from a tax perspective, is put investment bonds on a level playing field with superannuation.
“When you factor in the 15 per cent tax paid in the fund and the additional 15 per cent Division 296 tax, some of our investment strategies are actually better than super and put investment bonds on that level playing field.”
He added while investment bonds had a headline tax rate of 30 per cent, it was possible to reduce that to between 10 and 15 per cent, dependent on the investment options chosen, and this impost was paid within the fund and not by the investor.
“We don’t specifically ask people about their reasons for buying a bond, but we have seen an uptick in the scenarios we do for advisers and we’re getting lots of requests for scenarios for clients with large balances who are looking at investment funds versus keeping their money in superannuation,” he said.
The Division 296 measure had also raised the issue of estate planning for some super fund members, and investment bonds addressed the issue of death benefit taxes and trustee approval to pass on wealth to any named beneficiary, he noted.
“They can mitigate the tax impact of superannuation death benefits where a beneficiary might get stuck with an extra tax of about 15 per cent on that benefit,” he added.
“What we’re finding is there are a lot of investors whose kids are adults, so they are not dependants for tax purposes anymore, and passing on this wealth means they are getting that extra tax on the death benefit component.
“For SMSF members, trustee discretion is probably not a big issue, but for other funds you always have the trustee hanging over your head and they may make a determination that may not be consistent with the wishes of the deceased member.
“Advisers have picked up on this along the journey, particularly in the last couple of years, and seen investment bonds are a tax-effective vehicle and have some flexible estate planning outcomes you don’t ordinarily get with a superannuation account.”
