Three pillars and intergenerational transfer

With over-65s the fastest growing age group in the country, Australia’s ‘older dependency ratio’ (the number of people aged 65 or over, for every 100 of working age) is now around 20 – the highest it’s ever been and only going higher. It’s not surprising then that the Government slowly ‘shifts the goalposts’ to ensure it’s able to sustainably fund its commitments as the baby-boomers retire and access age, disability and carer payments as well as residential and home care.

A thousand cuts

  • In 2010, the Government announced an increase in the pension eligibility age from 65 currently to 67.
  • The preservation age for accessing super is increasing from 55 to 60.
  • Incremental reductions in the concessional contributions cap over time. In early 2009, this was $100,000 a year for over 50s. It may soon be just $25,000.
  • In 2015, the Government began to restrict the generosity of the age pension, with deeming rules changes. In 2017, the Government has assets in their sights with changes to the asset test threshold.
  • A lifetime non-concessional contributions cap of $500,000 has been proposed.

What’s next?

What the Government may change next requires crystal-balling. They may increase the preservation age to match the Age Pension age to keep people working longer. Or will they remove the exemption of the family home from the assets test? Or taper social security eligibility depending on how many unused bedrooms there are in the family home?

What we can be confident of is that super and social security will stay in the Government’s crosshairs. This will shine the spotlight on the ‘third pillar’ of our retirement funding – personal savings – as individuals will need to take more responsibility for securing their right financial outcome for them, and their family.

Investment bonds

The well-known features of investment bonds – tax capped at 30 per cent and tax-free after 10 years – are usually not high-priority considerations for retirees. However as Marc McCrindle from McCrindle Research points out, there are many other things to consider for retirees.

“The Baby Boomers currently comprise 25 per cent of the population yet they own 55 per cent of the nation’s private wealth. And in 2020, when the oldest Boomers hit their mid-70’s, we will witness the biggest intergenerational wealth transfer in history.”

Investment bonds are an effective way to transfer funds directly to nominated beneficiaries on death, bypassing your Will and helping with Estate Planning.

Case study

John is aged 75 and retired, has been told he has a terminal illness. He wants to ensure that when he passes away, his wealth will flow through to his adult children quickly, efficiently and without any hassle.

The majority of John’s funds are held in superannuation, both accumulation and as an account based pension which have significant taxable components. When he passes away there could be a substantial death benefit tax liability. All funds are currently arranged to go to his children via his estate.

John considers withdrawing the funds (in full or part) from the superannuation environment while he is alive, as there is no tax liability if funds are withdrawn by him. John could then invest the funds in an investment bond and nominate the adult children as his beneficiaries.


This solution has the advantage that the funds are paid directly and free of personal tax liability to the adult beneficiaries. As an investment in an investment bond forms no part of the estate, they will not be subject to the costs and delays often associated with obtaining probate and they cannot be directly contested.

Estate planning can be a complex area – we recommend seeking appropriate legal advice.

The information contained in this newsletter is provided on behalf of the IOOF group of companies and is intended for financial adviser use only. It is given in good faith and has been prepared based on information that is believed to be accurate and reliable at the time of publication. Any examples are for illustration purposes only and are based on the continuance of present laws and our interpretation of them at the time.