Alliance for a Fairer Retirement System Media Release
16 January 2019
The Labor Party’s proposal to deny franking credit refunds fails the test of sound public policy on four grounds – adequacy, sustainability, certainty, and, most importantly, fairness.
Professor Deborah Ralston, chair of the Alliance for a Fairer Retirement System, in an address today to the Gold Coast Retirees organisation, highlighted how the proposal would severely dent the incomes of more than one million Australians, of whom the vast majority could not be described as “wealthy”.
“For self-funded retirees and SMSF members this is a cruel blow. They have saved for retirement under rules that have been in place for over a decade, and now find they will lose up to 30% of their income in one hit if Labor is elected and implements this policy.
“Unlike the foreshadowed changed to negative gearing, there is no grandfathering proposed to allow individuals to adjust their investment strategies over time. This makes it especially harsh as many will be unaware of the impact of this proposal until it occurs.
“Under these changes, an SMSF or self-funded retiree with investments in Australian equities may find themselves worse off than if they had not saved for retirement.
“For example, an SMSF couple in pension phase with $1 million in savings and no age pension can now enjoy an annual income of $60,000 a year of which $42,000 is dividend income and $18,000 is a franking credit cash refund. Remove the franking credit cash refund and this SMSF’s income falls to $42,000 or 30 per cent.
“By contrast, a couple on a full age pension with $300,000 invested in Australian shares and in an APRA-regulated fund does not lose their franking credits and their income of $53,573 remains untouched, a situation the Alliance regards as fundamentally inequitable.”
“People who have worked hard all their lives to be self-reliant in retirement and have played by the Government’s rules suddenly find themselves in a situation where they will see their incomes slashed.
“The end result will be to drive many retirees on to welfare, an outcome that is the antithesis of our superannuation system – people being self-funding in retirement. It also further undermines confidence in the superannuation system.”
Ralston says the Alliance estimates that 1,239,000 people will be affected by this policy proposal, of which 437,000 will be SMSF members. In addition, nearly 2000 people in small APRA-regulated funds (less than five people) and 50 out of the 240 large APRA-regulated funds will fall foul of this policy. It will also engulf retired small business owners who have invested equity in their unlisted companies.
About the Alliance:
The Alliance for a Fairer Retirement System is a group formed to represent millions of senior Australians, shareholders, self-funded retirees and those planning a sustainable retirement, including over one million members of self-managed super funds. The Alliance was formed in response to Labor’s proposal to disallow refunds of excess franking credits for a range of retirees and shareholders. The Alliance’s focus is to explore options to fix problems with the existing superannuation taxation, Age Pension means testing and broader retirement income systems.
The organisations that form the Alliance include:
Association of Financial Advisers
Association of Independent Retirees
Australian Investors Association
Australian Listed Investment Companies Association
Australian Shareholders’ Association
Gold Coast Retirees Inc.
National Seniors Australia
Self-managed Independent Superannuation Funds Association
Stockbrokers & Financial Advisers Association
WA Self Funded Retirees
“The Alliance is deeply concerned not only by the negative economic impact that this proposed policy will have on more than one million Australians, but also by the psychological impact. We have been contacted by many older Australian who feel very let down and disappointed that the strategy they followed to save for retirement is likely to be undermined and leave them worse off.
“We are also concerned that Labor is adopting a public policy that will drive people on to welfare, especially when they have made every effort to save for retirement and be fully self-funded in retirement.”
Ralston says the policy will actively discourage Australians from investing in Australian businesses. “There can be no doubt that SMSF investment in blue-chip Australian equities has been an important development in capital formation in this country, and, as such, a policy that will ’encourage’ them to divest their holdings will have a significant impact on capital markets and capital management by Australian companies.”