Pensions, Regulation, Superannuation

Franking ban to inflame age pension reliance

A new survey of investors has found nearly half of respondents, 44 per cent, expect to be more reliant on the age pension if the Labor Party’s proposed policy to ban excess franking credit refunds becomes a reality.

According to Plato Investment Management, increased dependency on the government pension would mean a reduction in the savings the ALP estimates its proposed policy would achieve.

Furthermore, the survey, undertaken by Plato in October, found 92 per cent of respondents believe the proposed policy reduces the incentive to save for retirement.

Plato managing director Don Hamson said the majority of the 1400-plus respondents, 93 per cent, believe they will lose franking credits if the ALP wins the next election and proceeds with the current version of the proposed policy.

Of the 86 per cent who know roughly how much franking credit tax refund they currently receive, more than half, 56 per cent, get over $10,000 a year, while one-quarter receive $5000 to $10,000.

Commenting on the sentiment of survey respondents, Hamson said 97 per cent believe the planned changes are unfair, with 93 per cent stating they are very unfair.

“The vast majority of people we surveyed think their stress levels will rise as a result of the financial impact the proposed changes will have on them,” he revealed.

“Some 92 per cent think the Australian retirement system will be more complex than it already is.”

The proposed policy could also prompt many pension-phase investors to change their asset allocation, with a preference for investing in global stocks, in other words, taking money out of Australia and Australian companies, he said.

“The survey said 81 per cent of respondents will change their asset allocation if they lose their franking tax refund, with 46 per cent of these allocating in favour of global shares – taking their money out of the local equities market,” he noted.

Plato warned the proposed policy may impact on more retirees and super funds than anticipated, and according to Hamson, there are viable alternatives to the ALP proposal.

“Seventy per cent of respondents think the $1.6 million cap on super is sufficient to fix the problem of there being a few extremely large franking credit refunds, with 61 per cent selecting this as the best alternative to the proposed policy,” he noted.

“Given a choice between the proposed policy, having a cap on refunds of $10,000 or $15,000 a person, or limit on super in addition to the $1.6 million pension cap, the super limit wins hands down at 61 per cent.”

The survey will form part of Plato’s submission to the House of Representatives Standing Committee on Economics inquiry into the implications of removing refundable franking credits.

Plato received over 1400 responses comprising 76 per cent investors, 69 per cent retirees and 15 per cent those expecting to retire within five years.

Sixty-four per cent invest through SMSFs, while 22 per cent invest directly.

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