Constant super tinkering highlights benefits of alternative strategies


Constant Federal Government tinkering with the Australian superannuation system has created distrust in the eyes of most investors, but advisers can treat this as an opportunity to show the value of the advice they provide, says Matt Walsh, head of Lifeplan.

“Advisers will be facing a challenging time convincing clients they should still treat superannuation as an important vehicle for retirement savings, but there is also the opportunity to develop alternative strategies for those who need them.
“There are essentially three issues confronting investors: those who are ‘maxed out’ due to reaching the contribution caps; those on higher incomes who, over time, will be taxed more and more on their higher balances and earnings in their funds; and those who have lost confidence in the superannuation system due to the constant tinkering.
“These issues create opportunities for planners to develop alternate investment strategies where superannuation is one component of retirement savings rather than the sole vehicle.
“For instance, one strategy investors are starting to consider is using family trusts; however these are now less attractive following changes to the low income tax offset.
“A better strategy for many is likely to be investment bonds.  These limit the tax on earnings to 30 per cent or less, with no cap, and offer investors a wide range of investment options to suit their needs.
“Furthermore, for advisers, there is the possibility of creating intergenerational wealth management opportunities in the way the investment bond is set up.”
Mr Walsh said the inclusion of tax advantaged vehicles that offer diversity and growth should be appealing as an alternative, or additional, strategy to people concerned about continual government interference with their super savings.
“Superannuation is a trillion dollar honey-pot that no government can resist tapping to fill in holes in the national budget. 
“Many investors are increasingly concerned that at some time in the future they will either be taxed more or have severe restrictions placed on their ability to freely access their retirement nest egg.
“Advisers therefore have an opportunity to develop other strategies.
“For example, while there is never a guarantee about what Governments will do in the future, there have been no material changes to legislations on investment bonds for 10 years, and even that last change was a positive one, granting official sanction to the ‘scholarship plan’ variations on the investment bond structure in 2003.
“Use of investment bonds can help planners build their client relationships and distance them from the negatives of super.”
Mr Walsh pointed to findings from the University of Adelaide’s International Centre of Financial Services* that showed clients are increasingly interested in areas such as tax minimisation strategies and alternative investments.
“This is particularly true of older, male clients – who continue to make up the bulk of most advisers’ client base.
“In addition, the wealthier the investor, the higher the emphasis on investment regulations and tax strategies,” Mr Walsh said.

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