Future SMSF pensioners ‘big losers’ under Labor’s franking credits proposal

From
Prof. Deborah Ralston

Prof. Deborah Ralston

The Labor Party’s refundable franking credit proposal will adversely affect pensioners who choose to use a self-managed superannuation fund (SMSF) to manage their retirement savings, says Professor Deborah Ralston, a spokesperson for the Alliance for a Fairer Retirement System.

Ralston says: “The simple fact is Labor’s proposal will not exempt all pensioners. Any individual who became an Age Pensioner after 28 March 2018 and has an SMSF will lose their franking credit refunds. Those not involved in an SMSF, but who qualify for an Age Pension after 28 March 2018, would still be exempt from this proposal while they continue to receive an Age Pension.”

“It also means that Age Pensioners in some large superannuation funds which do not pay tax now or at some time in the future would lose their franking credit refunds.”

Ralston says there is a legitimate debate about whether franking credits are a withholding credit or a final company tax. “Where there can be no debate is the fact this proposal unfairly targets those individuals choosing to use an SMSF as their retirement vehicle.

“The discrimination against SMSFs inherent in this proposal extends beyond the unfair application of the ‘pensioner guarantee’, with some large superannuation funds claiming they will be able to pass on the benefit of franking credit refunds to their retiree members. However, some large superannuation funds may not be able to pass full franking credit refunds to members if they have a large proportion of members in pension phase, and consequently insufficient tax liabilities to offset the tax credits. In essence, an individual’s tax treatment will depend on what type of super fund they have.”

Ralston says if the policy rationale is franking credits should only be allocated to those members of superannuation funds who give rise to a tax liability, then the policy should be designed to apply at the individual member level within ALL superannuation funds.

“Any changes to the tax treatment of franking credits should be applied equally irrespective of their superannuation structure.

“One recent superannuation policy change which did this was the introduction of the $1.6 million cap on tax-free pension accounts. In this case ALL superannuation fund members were treated equally, no matter how they invested their retirement savings.”

Ralston says SMSFs are an integral part of the Australian superannuation system, providing an important source of choice, control and competitive tension within the superannuation system.

“Any proposal that puts the 1.1 million SMSF members at a disadvantage is not only discriminatory but removes an important element of competition from the superannuation system.

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 SMSF Association
  • Stockbrokers & Financial Advisers Association
  • WA Self Funded Retirees

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