The market for tax-effective products outside of superannuation is “set to explode” after the federal government’s sweeping changes to the superannuation system this year, says former Westpac executive Rob Coombe.
“There is a sense of mistrust around the constant changes to superannuation, which is creating a strong argument for people to look at alternative ways to save for their long-term goals,” he told The Australian yesterday.
A former banker and chief executive of the Quick Service Restaurant Group, Mr Coombe is moving to capitalise on the expanding market for investment products outside superannuation through the newly renamed, ASX-listed Generation Life.
Mr Coombe and Ellerston Capital bought a 20 per cent stake in ASX-listed Austock in July, with plans to use its life insurance licence to develop a market in investment bonds and other products such an annuities.
He said the company was renaming itself Generation Life from today to reflect a new focus on providing financial products “for Australians at different stages of their lives”.
Mr Coombe said an estimated $18 billion a year would be diverted to non-super investment products as a result of the federal government’s changes.
“Investment bonds used to be big in the eighties before the arrival of super,” said Mr Coombe, who is executive chair of Generation Life. “When super came in, they fell by the wayside.
“But with the federal government’s big changes to superannuation which came into effect this year — including the $1.6 million cap and lower contribution ceilings, and the 30 per cent tax rate on super contributions for people earning more than $250,000 — investment bonds are becoming attractive again.
“With the bank-owned wealth businesses now in turmoil, we believe there is an opportunity for a new player in the market,” he said.
Mr Coombe said superannuation was still the best way to save for retirement.
But he said investment bonds, where earnings were taxed at the company tax rate of 30 per cent, were “the next best tax structure” for people on high marginal tax rates.
Investment bonds were also good investment vehicles for people looking at estate and intergenerational financial planning.
Mr Coombe said there were many high net worth individuals who could not put any more into superannuation above their 9.5 per cent compulsory contributions.
He said others were now wary about putting too much extra into superannuation because of the constant changes.
“In the past few years, we have seen literally hundreds of changes to superannuation rules, most of which have been to the disadvantage of contributors,” he said. “This has increased the levels of mistrust in the retirement savings system by Australians.”
He said many Australians were also looking at ways to help support their children from schooling into later life when they faced university debts, expensive rents and high property prices.
Unlike superannuation, he said there was no limit on how much could be put into an investment bond and there was no preservation age.
There was also much more flexibility with investment bonds than super, as people could pull money out earlier than their 10-year lifespan or make additional contributions during the life of the bond.
Mr Coombe was chief executive of Westpac’s BT Financial services group for six years before heading up its retail and business banking arm from 2010 to 2012.
He took over as chief executive of Quick Service Restaurants, owner of Oporto and Red Rooster, in 2013. He stepped back to become chairman of the company earlier this year. The holding company has renamed itself Craveable Brands.
By Glenda Korporaal
5 December 2017