Money Management | The $3m super problem puts investment bonds back on the radar
For almost three decades, investment bonds have largely sat in the background of Australia’s wealth management landscape, but that is now changing.
The passage of the Division 296 legislation through Parliament marks one of the most significant shifts in Australia’s superannuation tax framework in recent years. The new rules will apply an additional tax to earnings on superannuation balances above $3 million, with the changes to take effect from 1 July 2026.
In the months leading up to the legislation passing, we have already seen a noticeable shift among investors approaching preservation age with superannuation balances above that threshold. Even before the law formally takes effect, advisers have begun repositioning their portions of these balances into investment bonds as part of broader tax and estate planning strategies.
There is no denying the debate around the proposed Division 296 tax has brought renewed attention to how wealth is structured in Australia. Now that the legislation has been finalised, it is imperative that advisers and their clients reconsider strategies that rely exclusively on superannuation.
This does not diminish the role of superannuation. It remains an extremely effective retirement structure and will continue to play a central role in long-term retirement planning. However, once balances move into the multi-million-dollar range, investors are thinking more carefully about diversification across different structures.
This is where investment bonds are becoming part of that conversation again and experiencing their time in the spotlight once more.
Advisers are looking at investment bonds as a complementary structure to super, with the dialogue being not about replacing super, but about building flexibility around it.
This is because of investment bonds operating outside the superannuation system and having their own tax structure, earnings within the bond are taxed internally at a rate capped at 30 per cent, and after ten years withdrawals are generally tax-paid in the hands of the investor.
In a policy environment as strong as what we have here in Australia where tax settings can and do shift over time, that level of certainty is immensely attractive for investors.
Flexibility is another factor. Unlike superannuation, investment bonds are not subject to preservation rules, so for investors approaching retirement, this provides an additional pool of capital that can be accessed when needed, and without being constrained by the superannuation framework.
For advisers, this flexibility is also more relevant as clients move closer to retirement and begin focusing not just on accumulation, but on how wealth will be managed and transferred.
Which brings us to the third large player in these discussions, that of estate planning.
Superannuation can present complexities when wealth passes to the next generation, with in many cases, adult children receiving superannuation death benefits that are taxed up to 17 per cent on the taxable component.
For families with substantial super balances, that is a consideration that simply cannot be ignored or addressed in the transfer of wealth discussion with their adviser.
The nomination of beneficiaries is another factor working in favour of investment bonds, and in many cases this allows proceeds to pass outside of the estate process. The investment itself is tax-paid, which can simplify the transfer of wealth between generations.
This is becoming increasingly relevant as Australia enters what is expected to be one of the largest intergenerational wealth transfers in its history and structures that support long-term estate planning are more prominent in advice strategies for this very reason.
What is becoming clear is that the discussion is no longer purely surrounding tax efficiencies, as advisers are also focussing on building structures that give clients greater flexibility over time. This is pivotal, particularly as retirement planning becomes more complex for high-net-worth individuals and families.
For many in this category, the objective is not to simply maximise returns but to create a portfolio structure that can operate across multiple decades and generations. This requires thinking about access to capital, tax treatment, and how assets will ultimately be transferred to beneficiaries.
Investment bonds offer a structure that can help support that broader planning framework, due to them operating outside the superannuation system and allowing investors to nominate a beneficiary directly. They also have the added benefit of being incorporated into estate planning strategies in ways that complement both superannuation and other investment vehicles.
We are also seeing advisers integrate investment bonds into portfolios earlier in the wealth accumulation phase, rather than waiting until clients approach retirement. In doing so, they are building an added flexibility into portfolios well before policy settings can become a constraint.
Trillions of dollars are expected to move between generations in the coming decades as older Australians pass assets to their families.
In this environment, advisers are looking beyond a single structure and instead building portfolios across multiple tax environments.
Policy uncertainty has a way of prompting advisers to revisit structures that were once overlooked.
In many ways, the renewed interest in investment bonds is less about innovation and more about rediscovery. For years, wealth accumulation in Australia has centred heavily on superannuation, supported by favourable policy settings.
But as those settings evolve, advisers are increasingly thinking in terms of structure, not just assets.
Superannuation will remain the cornerstone of retirement planning. However, for investors with significant balances, the conversation is shifting toward diversification across tax environments.
Investment bonds are re-emerging as one of the structures that can provide that flexibility, and what sat quietly in the background for decades is now firmly back on advisers’ radar.
