Felipe Araujo, chief executive of Generation Life, told SMSF Adviser that with the objective of superannuation now set in stone, the proposed Division 296 tax — as well as the impact of the super death benefits tax — financial advisers and their clients are rethinking how superannuation fits into their wealth accumulation plans and transferring that wealth to the next generation.
“While superannuation remains the most tax-effective structure, the resurgence of a new generation of investment bonds presents a highly flexible and tax-effective alternative,” Araujo said.
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“This rethink by financial advisers and investors is reflected in Generation Life’s inflows, which increased by 57 per cent from December 2023, shortly after Division 296 was first announced, to March 2025, as financial advisers and their clients increasingly adopt investment bonds as a core strategy outside the superannuation system.”
Araujo said this trend has been across the board, but is more prominent among high-net-worth investors.
“While the minimum investment amount is $1,000, our investment bond balances average around $250,000, and we generally see high-net-worth investors turning to investment bonds as a tax-effective vehicle to accumulate and transfer wealth outside superannuation,” he said.
“While investment bonds are ideal for high- and ultra-high-net-worth individuals, they also cater to a wide range of strategies across different life stages.”
For example, he said that for those on a marginal tax bracket above 30 per cent, investment bonds offer an effective solution for long-term wealth accumulation.
“Like superannuation, investment bonds are tax-paid structures taxed at a maximum rate of 30 per cent. However, the actual tax paid may be significantly lower depending on the asset class invested in,” he said.
“As a tax-paid structure, tax is paid by the issuer of the investment bond — not the investor. This simplifies the investor’s tax affairs and avoids earnings impacting their assessable income during the holding periods.”
He continued that this strategy helps reduce the risk of marginal tax bracket creep for those below the 47 per cent marginal tax bracket, while reducing overall tax payable on investment returns for those above the 30 per cent bracket.
“Due to its tax-paid nature, investment bonds can significantly enhance after-tax returns — the actual consumable income investors retain. The compounding effect of a lower level of tax paid on earnings can be substantial when compared to direct investments such as bank accounts, shares, or managed funds,” he said.
“Unlike superannuation, investment bonds have no contribution limits and allow access to funds at any time. They become even more tax-effective after 10 years, when all withdrawals are fully tax-paid.”
Araujo said he has been fielding a range of questions from anxious investors over the proposed super tax and is anticipating that Australians will start exploring alternative investment structures.
“Over the past 12 months, we’ve seen a notable increase in technical case queries from financial advisers, largely driven by the structural changes — particularly related to the legislated objective of superannuation,” he said.
“Many are enquiring about alternative strategies to manage the impact of the proposed Div 296 tax and the superannuation death benefits tax and how investment bonds can be used to help with these issues.”
He said that as a result, investment bonds have experienced significant support and growth in the level of funds under management.
“As legislation continues to evolve and change, it is more important than ever to diversify financial and wealth accumulation strategies,” he said.
“Investment bonds offer a compelling alternative — combining tax advantages, flexibility, and estate planning benefits, with the added certainty of being unaffected by superannuation reforms.”
