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The Experts

Michael Blake
+ About Michael Blake

Head of Centuria Life

Michael heads Centuria’s investment bond division. Michael joined Centuria in 2016, with over 30 years' experience in funds management, property and financial services. He has held senior positions with Heine Funds Management, Mercantile Mutual, Zurich, HSBC Asset Management and Cromwell Property Group, after commencing his career with AAP Reuters Economic Services. 

He holds a Bachelor of Financial Administration, Diploma of Financial Planning, Masters of Business Administration and is a Graduate of the Institute of Company Directors. Michael has held board positions locally and offshore.

Do you have life goals?

Monday, July 01, 2019

When you’re in your 20s, you might be occupied with saving for a deposit for your first home. Your thirties may see you needing to plan for school fees for your children’s education, while once you reach your forties and fifties, goals such as an overseas holiday, renovations or early retirement might be occupying your mind.

So how can you plan for these large expenses as they become relevant to your life stage? The most important concept for building wealth is to maximise the benefits of compound interest by investing early in your life and investing regularly. Compounding interest refers to the concept of re-investing your earnings so that each year you are making a return on a growing fund balance. Forming a regular investing habit at an early age is the single best advice a parent can give their children. Assisting with a small initial investment amount is a good way to encourage this process.

Once you start investing, choose an investment option that best suits your risk profile and marginal tax rate. Your risk profile is simply how much volatility are you prepared to accept to achieve your returns. Typically, the higher the return then the higher the volatility.

One tax-effective and simple way to invest for these goals is through the use of investment bonds. These are designed as medium to long-term investments that suit most people on a marginal tax rate that is higher than 30%.

The simplicity surrounding investment bonds is one of their key attributes. First you choose an investment option that matches your risk profile, which could be conservative, balanced or aggressive and then you can start it with an initial investment amount as low as $500. You can either leave that initial investment untouched or add to it each year with additional investments as low as $100, paid monthly, quarterly or annually straight from your nominated bank account. You can also automatically select to have your investment increase up to 125% each year, to maximise the tax benefits. This is known as the 125% rule.

Here’s an example

The tax effectiveness of insurance bonds is another great feature. Tax on the annual earnings of the Centuria LifeGoals Investment Options are reported and paid by Centuria Life at a maximum rate of 30%, less any applicable tax offsets, such as franking credits from shares and allowable deductions. You don’t have to include any of the investment bond’s earnings in your personal tax return and after 10 years, as long as you haven’t breached the 125% rule, you can withdraw the full amount with no additional tax to pay. If you withdraw funds within 10 years of your start date, you receive a 30% tax offset against your marginal tax rate on the fund growth. You also don’t need to pay any capital gains tax or switching costs if you switch between any of the 22 investment options during the investment period.

Whatever your specific life goals, an investment bond may help you reach them in a tax-effective and simple way.

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Are managed funds the best way to invest outside of super?

Thursday, June 13, 2019

Managed funds provide access to a range of diversified investments but with managed funds you pay tax on any earnings at your marginal tax rate, which might be as high as 47% as opposed to investment bonds, where fund earnings are taxed at 30%. Investment bonds like superannuation are designed as long-term, tax-paid investments but have the added advantage of being able to access your funds at any time.

For example, if your annual taxable income is at least $37,001, your marginal tax rate is 34.5% or higher on any additional income. So, at this taxable income, you can expect to pay this tax rate or higher on other investments held in your name, such as managed funds, but also on shares or property.

The tax paid on earnings within investment bonds, such as Centuria LifeGoals, is capped at 30%. This amount can also be reduced through the use of franking credits from shares and other allowable deductions. The table below shows the marginal tax rates for the financial year 2019.

Centuria LifeGoals offers other advantages, especially around their simplicity and estate planning. For example, you do not need to include the fund earnings in your personal tax return, unless you withdraw in the first 10 years. You can switch between any of the 22 investment options without incurring capital gains tax and if you keep the investment for 10 years you can withdraw part or all of your investment with no additional tax to pay regardless of capital gains made. If you do withdraw funds in the first 10 years, you receive a 30% tax offset for the tax the fund has already paid.

Below is a summary of the pros and cons of investing via a managed fund.

Managed funds


·      Access to professionally managed portfolio

·      Ability to diversify

·      Regular savings plan

·      Full access to funds

·      Long-term growth opportunities


·      High initial investment

·      Fund earnings included in your personal tax return

·      Capital gains tax on transfer

·      Capital gains on switching

·      Included in your estate

·      Accessible by creditors

Centuria LifeGoals shares all the benefits of a traditional managed fund, but they also have additional advantages including:

·      Can invest as little as $500 initially

·      No requirement to include earnings in your personal tax returns

·      No capital gains tax on switching

·      Tax-paid investment at 30%

There are also estate planning benefits to investment bonds that managed funds do not offer.

·      You can nominate beneficiaries and in the event of your death, the funds pass directly to them outside of the will and probate ensuring your wishes are fulfilled.

·      You can nominate a life insured and in the event of their death, the funds are paid to the beneficiaries tax paid, regardless of the start date.

·      Fund ownership can be assigned (transferred) to another owner at any time with no CGT consequences, as long as the transfer is for no consideration.

·      Because the investment is deemed a life insurance policy, it cannot be accessed by creditors in the event of bankruptcy.

When compared with traditional managed funds, investment bond products offer many additional benefits.

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Do you prefer an active or passive fund manager?

Wednesday, May 29, 2019

There are typically two styles of fund managers: active and index (or passive).  An active manager tries to beat the market by picking and choosing investments that aim to outperform a benchmark index, such as the S&P ASX300 index. Index managers take a more passive approach and aim to replicate an index’s return. They do this by tracking the returns of the index they follow by buying most of the holdings in that index. In other words, they replicate the index by purchasing most, if not all, of the holdings in the index and don’t need to perform any individual stock analysis. Because index funds are not employing teams of investment analysts and economists, they can provide funds at a lower cost to investors, typically with fees of below 0.20%. The negative is that they never actually beat the index.

Because active managers aim to outperform the market, their funds typically have a higher fee – usually around 0.8%-1% - to compensate for the extra work required to achieve the potential higher returns. This work includes more in-depth analysis of the balance sheets and earnings of each stock, economic forecasting of factors that may influence a stock’s earning, such as interest rates, currency movements or commodity prices, such as oil and gold and determining which sectors will outperform. If a manager is charging above 1%, investors need to ask why or consider a more cost-effective alternative. Research shows that most managers underperform the index, therefore investors need to ensure they are not paying active fees for index underperformance. Typically, you would want to see your active managers beating the index after fees over three and five-year periods. Short-term volatility is typically a bad indicator of long-term performance but should raise the question as to what has caused it. Most fund managers release quarterly fund updates, which should explain how the fund is tracking against its index.

Index funds tend to be more tax efficient when compared with active funds. This is because an active manager buys and sells investments more frequently than an index manager in order to achieve higher returns. This comes at a price – namely taxable capital gains, which is passed onto the investor.

While passive investing might sound a little “dull”, a passive approach can be applied to any market or asset class with an index to replicate – from equities, bonds to commodities – the same as for active investing. However, there are some areas of the market where an active approach makes more sense.  Examples include Australian small company funds where active managers regularly beat the index and direct property where there is no true index.

Choosing an approach for your own investment needs comes down to what suits your investment goals and how comfortable you are with risk. Perhaps your needs might require both an active and passive approach. With active managers you need to consider the level of outperformance you expect from them; the cost of choosing to be in an active fund as opposed to a passive one; and your own tolerance for taking on the risk that they may underperform the index. With any active manager there will likely be times when you will be paying for underperformance so you need to be comfortable with this and be patient and prepared to move your funds if the outperformance continues.

Once you choose to invest in an active fund you have a range of investment styles to choose from. The two major styles are value and growth. Value managers will look to invest in stocks with strong and growing revenue streams. Growth managers will be looking for companies with a growing market share or product range from which earnings will emerge. At different stages of the economic cycle these managers will perform differently. In times of strong market euphoria, the growth managers will typically outperform. It is important to understand that each manager’s investment philosophy will lead to times of over and underperformance, hence a blend of different styles will contribute to your portfolio diversification and should reduce its volatility accordingly. Regardless of the investment style, fund manager’s will still need to be able to pick the best performing stocks to deliver index outperformance.

Most investors will base their investment decisions on performance alone and this is their most common mistake. Last year’s winners can quickly become next year’s losers and looking beyond returns to understand a manager’s investment philosophy and building a portfolio of complementary managers should lead to better long-term outcomes with lower volatility of capital.

Another way of gaining exposure to a range of fund managers with different investment philosophies is through Centuria LifeGoals investment bonds. Centuria LifeGoals include a range of asset classes and diversified funds such as specialist low-cost index funds and high-quality complementary active investment managers. Unlike investing in managed funds directly and paying tax at your marginal rate, which may be as high as 47%, funds invested in LifeGoals have their earnings taxed at 30%. The product gives investors one simple solution that covers tax planning, investment and estate planning needs.

Unlike owning managed funds directly, you can invest in managed funds via Centuria Lifegoals and switch between managers with no capital gains tax consequences. Centuria will also review the selected managers on an ongoing basis to monitor whether they are meeting their investment objectives as set out in the product disclosure statement.

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What’s more important: the pre tax or after tax return?

Thursday, May 16, 2019

When you’re researching an investment, one of the first things you look for is how it has performed over time. Generally, the investment promoter will highlight the most attractive figure to draw you in – the headline return – and have the after-tax and fees return in smaller print where it’s difficult to spot. By just focusing on an investment’s pre-tax returns, investors may miss out on the most important aspect of an investment and that is how much you get to keep after you pay tax.

While tax shouldn’t be the sole motivator for choosing investments, it is important to be aware of the difference between headline and after-tax returns. And it’s not just the high-net-worth investors that need to be concerned. Most investors want their portfolios to be as tax efficient as possible: the less that you pay in tax, the more that is available to re-invest or to receive back in your hands. And by knowing the after-tax performance of an investment, you can see if your investment is growing or if the fees and taxes are eroding the outperformance advertised in the headline rate.

An understanding of the different types of returns also requires an awareness of the different strategies adopted by fund managers and where tax fits in with them. For example, a very active investment strategy, with higher stock turnover, will have a higher tax impact on a fund than a passive strategy because the active managers tend to buy and sell more frequently – crystallising capital gains on which tax is payable by investors in the form of a taxable distribution. This may be worthwhile if the greater returns expected from an active strategy are covering the tax payable generated by this process, which is another reason why it’s important to know what the after-tax returns are. After-tax performance takes into account the realised and unrealised gains and losses of the investments as well as any imputation credits from share dividends, tax deferred income from property investments and other allowable tax deductions. Typically, cash type investments, such as term deposits, bank bills and international shares, have no tax benefits to pass on to investors, whereas Australian shares, property syndicates and AREITs do have tax benefits.

Typically, index funds tend to be more tax efficient than active funds because for the most part they buy and hold the stocks in the benchmark index in whose performance they wish to replicate. As a result, the turnover is low.

Over time, the difference in the tax-effectiveness of investments can have a very significant impact on your overall wealth creation. Therefore, it makes sense to pay attention to the after-tax return figures and not compare them to other pre-tax performance figures. While past performance is never an indicator of future performance, a tax-efficient fund is more likely to return more of its growth to investors than one that doesn’t take tax efficiency into account.

A clearer picture of performance is available with investment bonds. Investment bonds are a tax-paid investment where the bond provider pays the tax on the underlying investments at 30% less deductions and franking credits. Unlike shares, term deposits or managed funds, performance returns are quoted net – or after the payment of fees and taxes by the provider, such as Centuria Life with its recently launched LifeGoals product.

Like superannuation during the life of the investment, there is no need to include the earnings in your personal tax return, unless you withdraw in the first 10 years, making them very simple to manage from an administration point of view. Unlike superannuation, you can access the funds any time. If you do withdraw funds in the first 10 years, you receive a 30% tax offset for the tax the fund has already paid. You can choose from an investment menu of 22 high-quality actively managed funds that best align with your risk/return profile.

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Superannuation is very tax-effective, BUT…!

Thursday, February 14, 2019

Recent changes to the super system have meant people can no longer put as much money into super as they could previously. This has led to a resurgence of interest in alternative tax-effective savings options such as investment bonds. We are introducing 19 new investment options bringing the total to 23 available options for you to choose from.

Here are some of the key advantages investment bonds have over super.

Tax paid by fund

Super fund earnings are taxed at a maximum rate of 15% within the fund, which is one of its key advantages. Investment bonds are also a tax-paid structure where the earnings are taxed at a maximum rate of 30%. This can be reduced by franking credits from shares, tax-deferred income from property and other allowable deductions. You also don’t need to include your investment bond returns in your annual tax return during the life of the bond as these are taxed in the fund itself. 

Tax-free earnings after 10 years

If the investment bond is held for 10 years or longer, the earnings are not subject to any further tax (personal tax and CGT events will not apply). This is attractive when compared with the personal marginal tax rates of higher-income earners or those with a marginal tax rate above 30%.

Flexibility in ownership

With Investment bonds, the ownership of the investment can be transferred to any individual or entity if the transferring investor is at least 16 years of age. Transferring ownership of your investment bond has no tax consequences if the transfer is for no consideration. The transferee also has the benefit of the original start date for calculating the 10-year period and that date is not reset when the investment bond is transferred.

Access to your money

You are generally restricted from accessing your super benefits until you reach 65 or your preservation age. The preservation age ranges from 55 to 60. When you reach preservation age, you can access your super as long as you are permanently retired. With investment bonds, you can access your money at any time, regardless of your age. 

Balance cap

Since 1 July 2017, a transfer balance cap applies to the total amount of super you can transfer into the tax-free retirement phase pension account. This transfer balance cap starts at $1.6 million (it will be indexed periodically in $100,000 increments in line with the CPI). Anyone with more than $1.6 million in the tax-free retirement phase will either have to move the excess back into the accumulation phase (where it is taxed) or out of the super system altogether. There is no balance cap for investment bonds. 

Contributions caps

Super contributions are limited to $25,000 each financial year for concessional contributions (which are paid pre-tax) and $100,000 a year for non-concessional contributions (paid from post-tax funds). In addition, anyone with a total super balance (comprising super, pensions and/or retirement savings accounts) of $1.6 million or more can no longer make any non-concessional contributions to super at all. This includes the bring-forward rule, which allows for larger non-concessional contributions in one year. There is no limit to the amounts you contribute into your investment bond in the first year. After this, you are limited to a maximum of 125% of the previous year’s contribution without restarting the 10-year period. If you do want to invest higher amounts you have the option of starting a new investment bond.

Additional advantages

Investment bonds are simple, tax-effective, flexible, and offer investment options across a range of different asset classes and portfolio combinations. Unlike super or other investments, investment bonds do not form part of your estate and may be left to a nominated beneficiary (or beneficiaries), who will receive all proceeds tax paid on your passing. If there is no Nominated Beneficiary, the Investor’s estate will receive the proceeds from the investment.  As investment bonds sit outside of the will, they can’t be challenged when a beneficiary has been nominated. You can also select Nominated Beneficiaries who are non-dependants who will receive the proceeds tax-paid.

Investment bonds may also offer protection from creditors in the case of bankruptcy.


While super continues to be the most tax-effective vehicle for retirement savings, changes to the super system have had strategy implications for many investors - and there’s no guarantee future governments won’t continue to tinker with it. Investment bonds are an ideal tax-effective solution to supplement your super or to help you achieve any of your long-term financial objectives. 

Disclaimer: Suitability of a Centuria Investment Bond will depend on a person’s circumstances, financial objectives and needs, none of which have been taken into consideration in preparing this article. Prospective investors should obtain and read a copy of the Product Disclosure Statement (PDS) for any investment bond and consider the information in the PDS in light of their circumstances, objectives and needs before making a decision to invest. This article is not an offer to invest in any of Centuria’s investment bonds products. An investment in any of Centuria’s investment bond products is subject to risk as detailed in the PDS. Issued by Centuria Life Limited ABN 79 087 649 054 AFSL 230867.
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The rise of the bank of mum and dad and how to avoid the pitfalls

Monday, April 30, 2018

By Michael Blake, Head of Centuria Life

According to the Oxford Dictionary, the “Bank of Mum and Dad” is defined as a situation where “a person’s parents are regarded as a source of financial assistance or support, especially in the context of the purchase of property”. And according to Australian financial comparison website Mozo, this new ‘bank’ is the country’s fifth largest lender, right behind the big four. Collectively, these ‘bankers’ have lent approximately $65.3 billion to their offspring, usually in one of two ways:

  • By allowing children to live rent (and bill) free at home while they save for a deposit or start a business; and
  • By providing upfront cash support for a deposit and/or repayments.

In fact, Mozo concluded that 29% of parents – or more than one million families – assist their children in buying a home. And this fact is backed up by findings from a survey commissioned by National Seniors Australia and investment manager Challenger in June 2017 which found that only 10% of retirees intend to spend all their savings on themselves, but rather expect to have to help children buy their own home during their lifetime.

And children are expecting more as well. Another recent report commissioned by Legal & General and the Centre for Economics & Business Research in the UK found that the proportion of prospective buyers who expect to get help from family has risen by 30% in one year. Now nearly half (48%) of first-time buyers expect to get some help from their parents.

This is good news for the children, but what about the parents? Unlike traditional bankers, over two thirds (67%) don’t expect to be repaid – so what does this mean for their retirement? 

Are they negatively affecting the quality of their own retirement by dipping into savings? The same survey from National Seniors Australia suggested that they might well be. It found that becoming the Bank of Mum and Dad increased the risk of reduced savings as well as financial hardship later in life.

In a nutshell

So what exactly is behind the rise of the bank of mum and dad? Why has it become so prevalent, what are the consequences and most importantly, what are the likely impacts on mum and dad themselves? 

Put simply, housing affordability.

  • A shortage of stock, low interest rates and the relaxation of foreign ownership laws have driven up prices and pushed young people out of the market. 
  • Most banks require a deposit of a minimum of 20%, which in the case of Melbourne equates to around $173,000 for a median priced house, and $250,000 in Sydney.
  • According to a report published by RMIT and Curtin University for the Australian House and Urban Research Institute (AHURI) the way the baby boomer cohort choose to pass on housing wealth to the children will have an increasingly important influence on the welfare of generations X and Y.
  • Results suggest that 25-45 year olds who receive a cash gift from parents have home ownership rates which are 15% higher than their peers, lifting the proportion who owned a home from 45-60%.

Impacts on mum and dad

  • According to Mozo’s research, two-thirds of families providing financial assistance do so from their savings. Nine per cent delay their retirement to help their children. Other reports show parents drawing down on their own mortgage to fund those of their children
  • Sometimes mum and dad can ill afford to help their children. Despite the fact that super assets are at an all-time high, $2.5 trillion at 30 September 2017, many Australians still do not have sufficient super to be self-sufficient in retirement.
  • The net result is twofold, either parents defer retirement to continue supporting children, or they retire with reduced savings and/or an ongoing mortgage to service.

Finding a better way

For parents who don’t have the means to help children without dipping into their own savings or delaying retirement, the best way to help their children is, of course, to plan ahead and save, or to encourage children to do so.

This is easier said than done. And if you are paying the highest tax rate, saving can feel like one step forward and two back, if every dollar you make becomes 50cents when the tax man calls. And as for children saving, more often than not they are not in a position to contribute to a savings plan until they are working.

And there are additional challenges in deciding just how to save. Using a savings account or term deposit is a common option, but the rates of return are so low that on an after-tax basis returns keep pace with inflation. 

Investment bonds.

One option which provides serious tax advantage, with flexibility and low cost is an investment bond. 

An investment bond is actually an insurance policy, with a life insured and a beneficiary, but in reality it operates like a tax-paid managed fund. And as with a managed fund, there are a number of underlying portfolios to choose from. 

These typically range from growth oriented through to defensive assets, and include domestic and global equities as well as property, cash, fixed income and a mix of all – depending on your investment horizon and objectives.

Benefits of investment bonds

Investment bonds have a range of features that make them ideal longer-term investment vehicles. 

Tax effective structure

An investment bond is a tax effective structure; tax is paid within the investment bond rather than personally by the investor. 

The maximum tax paid on the earnings and capital gains within an investment bond is the company tax rate of 30%, although franking credits and tax deductions can reduce this effective tax rate further. This makes investment bonds a particularly attractive investment vehicle for high income earners.

If the investment is held for 10 years, no personal tax is paid. However, if the investment is redeemed within the first 10 years, tax will be payable on the assessable portion of growth as shown in figure two.

No annual tax reporting

As long as your money remains invested, the manager of the investment bond will pay tax on investment earnings; there is no requirement to declare those earnings in annual tax reporting. 

No limit on investment amount

There is no limit on the amount that can be invested to establish an investment bond. Importantly, investors can make subsequent investments up to maximum of 125% of the previous year’s contribution without restarting the ten-year period. 

Additional investments can be made annually or as a regular contribution. This way, parents can initiate an investment bond to help their children save toward a home and make either regular or ad-hoc additional contributions. As the children get older and start working, they too can contribute. 

Transfer of ownership

The ownership of the investment bond can be easily assigned or transferred at any time. The original start date is retained for tax purposes. 

Paid tax-free to nominated beneficiary/ies

Once the ten-year investment period ends, or in the event of the death of the investor, the investment bond is paid tax-free to the nominated beneficiary/ies. 

Case Study

Matthew and Jane are a hard-working professional couple with a 15-year-old daughter. They have been concerned about rising property prices and have heard from friends first-hand about the difficulties faced by first home buyers to afford a property. In fact, a number of their friends have drawn down on their mortgage to assist their children buy their first home, something Matthew and Jane would like to avoid. 

Matthew and Jane’s goal is to fund a deposit for their daughter’s first home. Based on a national median house price of $780,877 and the median unit price of $546,422, a 20% deposit of approximately $110,000 would be needed to buy a unit without the need for lender’s mortgage insurance. 

Mathew and Jane have saved $25,000 in a cash account for Chloe. They both pay the highest marginal tax rate and want to access the investment in 10 years’ time when Chloe is 25 and ready to take on the responsibility of a mortgage. 

They consider other options such as gifting or loaning the deposit to Chloe or acting as guarantor and signing as joint borrowers on Chloe’s loan. Their adviser explains the advantages and disadvantages of each option and recommends they invest the $25,000 into the growth option of an investment bond.


Matthew and Jane believe they can afford to add between $5,000 – $10,000 to the investment each year. As illustrated in figure three, either way they should at least cover the deposit – and where they can make higher contributions, they can provide Chloe an especially good start with her mortgage.

Consider a tax-effective investment plan

There’s no reason for parents with the financial means to help their children purchase a home or start a business shouldn’t provide that help if they want to. At the same time, it’s equally important to be realistic about the consequences of dipping into savings, or deferring retirement to continue supporting grown-up children.

Setting up an investment plan which is tax-advantaged, yet flexible, low cost and which allows for easy additional contributions each year, is one way of ensuring that the funds to help support children in an increasingly unaffordable housing market will be there when they are most needed.

Note: This is a sponsored article

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