Peter Switzer

Income investors have been cautioned to prepare for potential sweeping changes to franking credits, negative gearing and capital gains discounts, all of which will reduce their ability to find reliable forms of investment income.

Noted business and financial commentator Peter Switzer said the proposed changes – which will be implemented if the Australian Labor Party (ALP) wins the next Federal election – will affect the majority of investors.

“Many investors rely on income from shares their retirement,” he said yesterday. “If these changes go ahead, people who have created a retirement strategy around stocks paying fully-franked dividends will not only see their income slashed but could also see their share prices hit as investor demand decreases.”

Mr Switzer said rather than investing directly only, investors should consider adding a dedicated income fund to their portfolio.

“A collection of actively-managed funds spreads investment risk across a number of assets, which lowers volatility because the strategy adds diversification to a portfolio,” he said.

Too many investors are in income-paying stocks because the franking credits delivered nice tax refunds, but investors who prefer to select their own portfolios are advised to diversify their sources of income.

“Don’t just rely on a handful of stocks such as the banks and Telstra – there are many other companies paying dividends these days. If franking credits are removed there is also less incentive to invest domestically, so consider looking offshore for more attractive sources of income,” he said.

“There are also overseas and local funds that tap into corporate bonds and other income-paying assets which will become more appealing if Labor denies tax refunds to retirees with self-managed super funds, who are in the zero tax zone,” he said.

In addition to the changes to franking credits, the ALP has also proposed to limit negative gearing to new rental dwellings and to halve the CGT tax discount from the current 50% to 25%.

“It is important to seek tax advice to determine the impact of any changes on retirement income and anyone considering a new property investment should certainly seek advice before proceeding,” Mr Switzer said.

Income investment outlook for 2019

The outlook for income investors for 2019 was expected to be one of change.

“Investors nearing or in retirement need to better understand the changes proposed and the alternative sources of income, all without taking on too much risk,” he said.

Beside the political landscape, he says: “Investors nearing retirement, along with retirees, need to better understand the changes proposed and the alternative strategies to help maximise income – all without taking too much risk.”

“There are now more opportunities for income than ever before. It is just a matter of knowing where to find them – be it a wider network of income generating assets, both local and global.”

Even if Labor does not form government next year, the threat of their policies is a timely reason for all investors to think about being more diversified and especially those trying to build up reliable income for retirement goals.”

Mr Switzer said he was so concerned about the magnitude of these changes that he had decided to host a free event to help retirees learn more.

“This will be an opportunity for all those who are interested to share their thoughts on what income products and strategies should be considered,” he said.

The event will be first held in Melbourne on 27 November and then in Sydney on 29 November and include local and global experts to provide their thoughts along with examples on who will be impacted and how much.

Complimentary tickets are available for investors who might need help and can be obtained here.

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