Australians still relying on super for wealth transfer

Ahead of an expected $4.9 trillion intergenerational wealth transfer, over a quarter of Australians continue to rely on their superannuation to leave a legacy, although this isn’t the intended purpose of the system and continues to be a tax-ineffective solution. 

A new survey of 2,000 Australian adults by Generation Life revealed almost 70 per cent of Australians feel confident they will leave a legacy to future generations. 

Some 34 per cent are relying on superannuation to transfer wealth while almost half (49 per cent) are relying on wills.

Outlined in Generation Life’s Reimagining Legacy report, both remain tax-ineffective solutions and demonstrate a “national knowledge gap.”

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“This showcases a national knowledge gap, as wills can create complexities if not drafted properly and can prevent wealth being transferred to the intended recipients with certainty,” it stated.

“Superannuation, on the other hand, is not intended to be a wealth transfer tool, and the tax implications can be an issue when it’s used as an intergenerational wealth transfer vehicle to transfer wealth to non-dependents. 

“This is compounded further by recent proposed superannuation changes that will mean from 2025–26, earnings (both realised and unrealised) on superannuation account balances over $3 million will be taxed an additional 15 per cent.”

Some $224 billion each year in inheritance is expected to be passed between generations by 2050, but it seems much of this could be lost during transfer, Generation Life noted. 

Earlier this year, Minister for Financial Services, Stephen Jones, also stated that the purpose of super is to provide for retirement income.

“It strikes me as odd in a system which is about retirement income that a third of the cheques written by superannuation fund, by value, are bequests,” he told ABC News Breakfast.

“It’s not the purpose of superannuation to have a tax preferred, state planning mechanism. It’s for providing for people in their retirement.” 

Reflecting on the findings of the research, Generation Life’s chief executive, Grant Hackett, said: “The research really demonstrates that people aren’t prepared to pass on that wealth, which is really interesting because they’ve accumulated this massive amount of wealth, but what about how it gets handed over to the next generation? Is it tax effective? Will the beneficiaries be satisfied with what they’re getting? Have they got the appropriate structures in place?”

Per the research, around 70 per cent of affluent Australians define legacy as passing on memories, values and lessons.

Over half (57 per cent) view it as a financial bequest to help build the foundations for the financial success of those around them.

In keeping with this, 63 per cent of Australians’ children are expecting to be the recipients of their legacy while around 21 per cent want to pass on their legacy to their grandchildren as well. 

Unfortunately, just 15 per cent of Australians with under $1 million in assets and 18 per cent with more than $1 million in assets have a plan in place.