I want to tell you about a little known savings and investment product called the Investment Bond. It also goes under the names of Growth Bond and Insurance Bond. It is generally available from Friendly Societies and Insurance Companies.
It is a 10-year non-superannuation product with an underlying investment in managed funds that offers tax concessions without requiring your money to be locked up until you retire. Tax is paid by the product issuer at the company tax rate, and after 10 years there is no further tax to pay.
This can be major benefit to high income earners and it doesn’t really disadvantage lower income earners either. If you do withdraw money inside the 10-year period, it means you may pay some extra tax depending on your personal tax position.
There is a restriction on money going in, but nothing like the current superannuation caps. After you put your money in the first year, you can’t put in more than 125% of what went in the year before. This requires a little planning in advance to make the most of your tax-concessional savings each year.
The Investment Bond has a few other benefits worth mentioning that can make it very useful, depending on your circumstances:
- Additional retirement savings to supplement superannuation
The Investment Bond is an obvious retirement saving supplement to superannuation. The current low and dropping contribution caps mean a big restriction for many people saving for their retirement; especially older people who are saving hard after the kids move out of home.
- Tax efficient savings on behalf of children
The Investment Bond allows you to save and invest on behalf of a child for any purpose (e.g. education, travel, home deposit). The money will automatically transfer to the child at the ‘vesting age’ you nominate, without being exposed to penalty taxes imposed on unearned income received by minors; as would be the case with an ordinary managed fund.
- Estate planning features
The Investment Bond has the estate planning features of a life insurance policy but without any insurance cover. This means that you can nominate one or more people as beneficiaries in the event of your death. And that can be anyone, not just the restricted few available in super. The proceeds are paid directly to the beneficiaries you nominate without going through your will; and without the imposition of any additional taxation that can apply with ordinary managed funds and superannuation investments. For split, blended and conflicted families, this could be the ideal solution you didn’t know about.
Although it’s good to be aware of what’s out there in the financial market place, please don’t rush out to sign up to any investment you don’t understand without getting professional advice. This product may or may not be appropriate for you. Like all investments it has an element of risk. So if you would like to know more, please talk to me first or ask for a Product Disclosure Statement from one of the providers.