Superannuation is the backbone of most Australian retirement plans, but the numbers tell a story worth paying attention to. Median super balances for men aged 65–69 sit at $230,766, while women the same age have $207,187, according to the AFR. For many people, that’s not enough to live on without the Age Pension, which remains the main income source for 42% of men and 41% of women in retirement. The proposed Division 296 tax changes, which would add 15% tax on earnings from super balances above $3 million, have pushed some high-balance members to consider alternatives — but the rules aren’t final yet, and the affected group is estimated at around half a per cent of account holders.
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This article is general information only and does not constitute professional advice. For your specific situation, consult a qualified professional.
Superannuation has powerful tax advantages — contributions are taxed at 15%, and earnings within the fund are taxed at 10–15% rather than your marginal rate. But it locks your money away until preservation age, which is currently 60. That’s why some people are looking at alternatives like investment bonds, trusts, and direct investments. The question is whether the trade-offs are worth it. Here’s what you actually need to know.
What you need to know about investment bonds, trusts, and other structures
An investment bond is a life insurance policy with investment features. Earnings inside the bond are taxed at a long-term rate of 10–15%, compared with up to 47% for high-income earners who invest directly. You can pass investment bonds to beneficiaries without triggering a tax event. But they come with specific holding-period rules, fees, and limited investment options compared with super. The Generation Life product is one example, but every bond issuer has its own terms.
What I tend to notice is that people hear “10–15% tax rate” and assume it’s better than super. But super still offers a lower rate on contributions (15%) and the same or lower rate on earnings. The real advantage of investment bonds is flexibility — you can access the money before preservation age, and they can be useful for estate planning because they don’t go through probate.
The numbers that actually govern this decision
The table below compares the key features of superannuation, investment bonds, family trusts, and direct investments. These are the figures that matter when you’re weighing up which structure suits your situation.
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| Structure | Tax rate on earnings | Access age | Typical costs | Estate planning |
|---|---|---|---|---|
| Superannuation | 10–15% | 60+ | Low (fund fees) | Tax-free to beneficiaries |
| Investment bond | 10–15% (long-term) | No restriction | Moderate (fees + insurance component) | Can pass tax-free, no probate |
| Family trust | Beneficiaries’ marginal rate | No restriction | High (setup + admin + compliance) | Complex succession rules |
| Direct shares / property | Marginal rate (up to 47%) | No restriction | Low to moderate (brokerage, management) | Via will, CGT may apply |
Here’s what those numbers mean in practice. If you’re a high-income earner on a 47% marginal rate, an investment bond’s 10–15% long-term rate looks attractive. But super still gives you 15% on contributions and 10–15% on earnings, plus you get the benefit of compounding without the drag of ongoing fees. Moving $500,000 out of super into a trust or bond could trigger a tax event on the way out, and you’d lose the concessional treatment on future contributions.
The AFR reported that future median super balances for retirees with meaningful compulsory contributions are expected to exceed $500,000 in ten years. That’s still below the $3 million threshold by a wide margin. For most people, the best strategy remains maxing out super contributions — up to $30,000 per year under the concessional cap — and only looking at alternatives once that’s in place.
Errors and gaps when considering alternatives to super
Moving assets out of super before understanding the tax cost
This is the most expensive mistake I see. Transferring assets from super to a trust or company can crystallise capital gains and trigger exit taxes. You lose the 15% tax rate on future contributions, and you may end up paying more in ongoing costs than you save in tax. The Kalkine analysis notes that any alternative structure involves costs, compliance obligations, and trade-offs that need to be weighed against the concessional treatment you’re giving up.
Underestimating the ongoing costs of running a trust or company
Family trusts offer flexibility in distributing income, but they come with establishment costs, annual accounting fees, complex tax rules, and the need for a trust deed. Companies have their own tax rate and administrative burden. If your investment portfolio isn’t large enough to justify these costs, you could end up worse off than staying in super or investing directly. The research from Unified Wealth highlights that professional advice is essential to determine whether the structure fits your goals and numbers.
Assuming investment bonds are always tax-effective
Investment bonds have a 10–15% long-term tax rate, but that rate depends on the bond’s underlying investments and the holding period. If you withdraw before 10 years, the tax treatment changes. The Resolution Life article notes that investment bonds carry specific rules, fees, and consequences for accessing funds at different times. They’re not a replacement for super — they’re a complement for specific needs like pre-retirement income or estate planning.
- Compare after-tax outcomes of remaining in super vs alternative structures, including all costs
- Factor in setup fees, ongoing admin, and compliance costs for trusts or companies
- Check the 10-year holding period rules and exit penalties for investment bonds
- Consider your timeline: do you need access before age 60, or is super’s lock-up acceptable?
- Don’t act on Division 296 until the rules are finalised and your specific circumstances are clear
How to evaluate retirement investment structures beyond super
Compare after-tax outcomes including all costs
Start with a clear comparison of what you’d actually keep after tax, fees, and compliance costs under each structure. The Kalkine research emphasises that comparing after-tax outcomes is the first step. Use a spreadsheet or work with a financial adviser to model your specific situation. Include the tax you’d pay on contributions, investment earnings, and withdrawals, plus the cost of running the structure each year.
When alternatives actually make sense
Investment bonds can be useful if you want to build wealth outside super for a specific goal — like retiring before 60 or funding a child’s education. Family trusts work well for business owners who want to distribute income across family members. Direct property or shares give you full control and access, but you pay your marginal tax rate on income and gains. The Unified Wealth guide notes that building wealth outside super creates flexibility but requires careful planning around cashflow, tax, and risk.
Step-by-step: how to weigh your options
- 1Calculate your current super balance and projected retirement incomeUse the ATO’s online tools or your super fund’s retirement calculator to estimate your balance at preservation age. Compare this with your expected retirement spending.
- 2Identify the gap or goal that super can’t coverDo you need pre-retirement income? Want to leave a tax-free inheritance? Planning to retire before 60? The answer determines which structure suits you.
- 3Model the after-tax return of each alternative structureInclude setup costs, ongoing fees, tax on earnings, and exit costs. Compare the net result with staying in super. Use the MoneySmart tools for guidance.
- 4Factor in the costs of leaving superMoving assets out of super can trigger tax. An SMSF with illiquid assets adds further complexity. The Kalkine analysis warns that crystallising tax and forfeiting concessional treatment may outweigh the benefits.
- 5Get professional advice tailored to your situationTax rules, estate planning, and compliance obligations vary by structure and personal circumstances. A qualified financial adviser can help you navigate the trade-offs. If you need help understanding the legal or tax implications, consider connecting with a specialist through JustAnswer Finance for tax and accounting guidance, or JustAnswer Legal for estate planning questions.
What’s changing — and what’s still uncertain
The proposed Division 296 legislation is not yet law, and its design and timing remain debated. Acting before the rules are finalised could be premature, as the Kalkine research notes. Meanwhile, the Age Pension age is rising, and the AFR reports that $3.5 trillion in personal wealth is expected to transfer from older Australians to the next generation over the next 20 years. Estate planning is becoming a bigger factor in retirement decisions. The average inheritance was $188,249 in the three years to 2022, and the average recipient was around 55 years old — right at the point where they’re thinking about their own retirement strategy.
Frequently asked questions about alternative retirement investments
What is Division 296 and who does it affect? ▾
Can investment bonds replace super for retirement? ▾
What happens if I move money out of super into a trust? ▾
Are family trusts worth the cost for investing? ▾
How does the Age Pension interact with alternative investments? ▾
Division 296 isn’t law yet — don’t restructure too early
The most important thing to understand is that the proposed Division 296 changes are still being debated. Reacting to a rule that doesn’t exist yet could cost you more than it saves. For the vast majority of Australians, superannuation remains the most tax-effective retirement vehicle available, and the best strategy is to maximise your contributions within the current rules. When you’re ready to explore alternative structures, take the time to compare after-tax outcomes, factor in all costs, and get advice tailored to your specific situation.
Remember: this article is general information only. For advice on your specific situation, speak to a qualified professional.
If this was useful, you might also want to read Retire Rich: The Aussie Dream or a Financial Illusion?
Sources and Further Reading
Legacy Planning: Making a Difference That Lasts Beyond Your Retirement — A deeper look at how to structure your estate and plan for what happens after you’re gone.
Kalkine Education (2024). Beyond Super: Could Trusts, Bonds, and Other Structures Help Under Division 296? 🔗
AFR (2024). Exploring tax-effective alternatives to super. 🔗
Resolution Life (2024). Building Wealth Beyond Your Super. 🔗
Unified Wealth (2024). Building Wealth Beyond Super. 🔗
