Retirees and long-term superannuation savers are facing potential major changes to their income as the federal government prepares to alter two key aspects of superannuation.

New modelling by financial advice group J Purpose Analytics reveals that with the proposed changes — which include a crackdown on companies using off-market share buybacks to distribute franking credits — self-funded retirees could be between 10 per cent and 18 per cent worse off.

The move was said to help the government save an estimated $550 million over the next three years.

It should be noted, however, that the federal government decided to take such action despite having clearly proclaimed during the lead-up to the last federal election that the system would not be changed during its present term.

The federal government's financial decisions will likely heavily impact the retirement funds of superannuation savers. Credit: Bizzbuss via Getty Images.

Keeping this in mind, it did not come as a surprise that retirees — especially those who are self-funded and receive a large percentage of their income from franking credits — are said to be feeling 'confused and angry' about the prospective changes.

It was reported that several retirees teamed up with fund management and retirement chiefs and representatives from retirement groups, say that the moves might signal a bigger agenda to work against self-managed super fund (SMSF) members, asserting that these beneficiaries are being treated differently from individuals who belong to large superannuation funds.

The group said it will launch a campaign to fight any attempts to change the franking credit policies included in the recent budget, which was based on the successful fight against former Opposition Leader Bill Shorten's plan to abolish cash refunds of franking credits in the lead-up to the 2019 federal election.

The Australian Taxation Office estimates that the funds include about $868 billion, or about 25% of all super assets.

While he and his colleagues were involved in conversations about earlier changes, John Maroney, the chief executive of the SMSF Association, claimed that the Budget's crackdown on businesses utilising off-market share buybacks to distribute franking credits came as a complete surprise.

He said: 'This planned change to franking credits does matter.'

'The government is punishing long-term Australian resident shareholders. It adds to fears that Labor is out to remove franking credits.'

Rachel Waterhouse, the chief executive of the Australian Shareholders' Association, asserted that her group, which has roughly 6,000 members, is strongly opposed to any attempts to make changes to policies that have already been implemented since 2016.

'The government needs to maintain confidence in the markets and self-funding of retirement and ensure a holistic approach to a fragmented tax system, not a piecemeal approach,' she remarked.

Major companies have been carrying out off-market share buybacks for more than 10 years in an attempt to gain an advantage over the stock market. They often offer the shares at a lower price than the market price, and the companies compensate the investors for the difference by including franking credits as part of a dividend and capital return to the shareholders.

This type of income makes up a significant portion of the retirement savings of many self-funded retirees and other superannuation plan members.

The recent policy changes made by the federal government, according to Geoff Wilson, chairman and chief investment officer of Wilson Asset Management, would have significant 'unintended consequences'.

Mr Wilson asserted that the government is weakening the system.

Additionally, he wrote to 130,000 of his shareholders, urging them to lobby their local representatives of parliament to put a stop to the proposed reforms.

The finance expert said: 'The current system ensures market stability, encourages capital raisings and investment in Australia.'

Financial Services Minister Stephen Jones has declined to comment on the matter.

Key Takeaways

• The federal government is accused of undermining self-funded retirees with two changes to capital raisings and franking credits in a month, despite election promises the system would not be changed.
• Retirees claim they are ‘confused and angry’ about prospective changes they believe will reduce future income and potential retrospective amendments expected to require additional tax payments on realised gains and income.
• The changes are estimated to save the government around $550 million over the next three years.
• The Association of Superannuation Funds of Australia (ASFA) has said that the changes could have a significant impact on retirees’ incomes.
• Self-funded retirees and accumulation phase superannuation savers could be up to 18 per cent worse off under the changes.

How do these proposed policy changes affect you? Share your thoughts with us in the comments below!

 

[Luckyus]

Retirees and long-term superannuation savers are facing potential major changes to their income as the federal government prepares to alter two key aspects of superannuation.

New modelling by financial advice group J Purpose Analytics reveals that with the proposed changes — which include a crackdown on companies using off-market share buybacks to distribute franking credits — self-funded retirees could be between 10 per cent and 18 per cent worse off.

The move was said to help the government save an estimated $550 million over the next three years.

It should be noted, however, that the federal government decided to take such action despite having clearly proclaimed during the lead-up to the last federal election that the system would not be changed during its present term.

The federal government's financial decisions will likely heavily impact the retirement funds of superannuation savers. Credit: Bizzbuss via Getty Images.

Keeping this in mind, it did not come as a surprise that retirees — especially those who are self-funded and receive a large percentage of their income from franking credits — are said to be feeling 'confused and angry' about the prospective changes.

It was reported that several retirees teamed up with fund management and retirement chiefs and representatives from retirement groups, say that the moves might signal a bigger agenda to work against self-managed super fund (SMSF) members, asserting that these beneficiaries are being treated differently from individuals who belong to large superannuation funds.

The group said it will launch a campaign to fight any attempts to change the franking credit policies included in the recent budget, which was based on the successful fight against former Opposition Leader Bill Shorten's plan to abolish cash refunds of franking credits in the lead-up to the 2019 federal election.

The Australian Taxation Office estimates that the funds include about $868 billion, or about 25% of all super assets.

While he and his colleagues were involved in conversations about earlier changes, John Maroney, the chief executive of the SMSF Association, claimed that the Budget's crackdown on businesses utilising off-market share buybacks to distribute franking credits came as a complete surprise.

He said: 'This planned change to franking credits does matter.'

'The government is punishing long-term Australian resident shareholders. It adds to fears that Labor is out to remove franking credits.'

Rachel Waterhouse, the chief executive of the Australian Shareholders' Association, asserted that her group, which has roughly 6,000 members, is strongly opposed to any attempts to make changes to policies that have already been implemented since 2016.

'The government needs to maintain confidence in the markets and self-funding of retirement and ensure a holistic approach to a fragmented tax system, not a piecemeal approach,' she remarked.

Major companies have been carrying out off-market share buybacks for more than 10 years in an attempt to gain an advantage over the stock market. They often offer the shares at a lower price than the market price, and the companies compensate the investors for the difference by including franking credits as part of a dividend and capital return to the shareholders.

This type of income makes up a significant portion of the retirement savings of many self-funded retirees and other superannuation plan members.

The recent policy changes made by the federal government, according to Geoff Wilson, chairman and chief investment officer of Wilson Asset Management, would have significant 'unintended consequences'.

Mr Wilson asserted that the government is weakening the system.

Additionally, he wrote to 130,000 of his shareholders, urging them to lobby their local representatives of parliament to put a stop to the proposed reforms.

The finance expert said: 'The current system ensures market stability, encourages capital raisings and investment in Australia.'

Financial Services Minister Stephen Jones has declined to comment on the matter.

Key Takeaways

• The federal government is accused of undermining self-funded retirees with two changes to capital raisings and franking credits in a month, despite election promises the system would not be changed.
• Retirees claim they are ‘confused and angry’ about prospective changes they believe will reduce future income and potential retrospective amendments expected to require additional tax payments on realised gains and income.
• The changes are estimated to save the government around $550 million over the next three years.
• The Association of Superannuation Funds of Australia (ASFA) has said that the changes could have a significant impact on retirees’ incomes.
• Self-funded retirees and accumulation phase superannuation savers could be up to 18 per cent worse off under the changes.

How do these proposed policy changes affect you? Share your thoughts with us in the comments below!

The only way to tell when a politician is telling the truth is when he keeps his mouth shut.

 

[LaniK]

As usual, the ones who have worked the longest - most of us since our early teens, and paid huge taxes and 17.75% housing interest are again being slogged. While this is happening, those bludgers who have never worked a day in their lives and some who milk the system get more, never get penalised and in a lot of cases get more than the veterans. This needs to be stopped. It is hard enough now to manage on a pension supplemented with a small super contribution to make it last until we die.

 

[Capsam]

Proves that politicians, including the 31st P.M. lied during the election campaign. No integrity, no values, no principles!

 

[bobandleeanne]

The only way to tell when a politician is telling the truth is when he keeps his mouth shut.

And his hands in his own pockets

 

[Bilmc36]

Franking credits were introduced to avoid dividends being taxed twice. The company has paid tax on its profit, so the shareholders would not be taxed when those profits were distributed as dividends. If the shareholder is not liable for any tax, they are not entitled to any refund. Pretty simple really.
And can I toss in a word about the whingers banging on about having worked hard all their lives and now being slugged by the government in their twilight years. As a mid octogenarian I am one of that generation, and we had it so good for so long. Plenty of jobs, affordable housing etc etc. In my view, the most blessed generation ever.

 

[SHEPNQ]

Australia is operating with a Structural Deficit. As a country we are spending more than the country makes. Any Decisions taken to increase Australia Income will receive criticism from vested interests.
Franking Credits and SMSF are one. These SMSF's who based their investment decisions on a structure that where they depend on an ever-increasing return from the rest of the Taxpayers in the Billions. Not Sustainable.
NDIS whilst a laudable objective is another vested interest with currently an ever-increasing dependence on the Public Purse. Yes, the recipients of NDIS are amongst the more needy of Australian Society, but when the average NDIS Package is $35,000 PA, for currently 11,000 recipients this quickly adds up to $385M per year. The Average will go up along with the number of recipients. Not to mention Fraud and questionable charging rates for NDIS Providers. ($54 per hour under NDIS compared to less than $30 per hour for Aged Care staff)

Mineral Resources including Gas - These Minerals are Australian owned resource. Yes the various companies that extract them have spent $Billions in setting them up. Now they are currently making Multi Billions and most of them are not paying adequate tax / royalties. A method to address this needs to be devised and implemented quickly. Once the resources are gone, they are gone.

You can't take advantage at both ends of the Structural Deficit. You end up being Bankrupt

 

[Macarj]

So you save all your life to be self funded and not rely on a Government pension then the charge you for it the same as baby boomers paid the highest tax while they were working the Governments have always been complaining that they will have trouble paying pensions when all the baby boomers arrive for a pension and yet the force more and more self funded people onto a government pension the facts are the governments are stupid

 

[Killa]

As usual, the ones who have worked the longest - most of us since our early teens, and paid huge taxes and 17.75% housing interest are again being slogged. While this is happening, those bludgers who have never worked a day in their lives and some who milk the system get more, never get penalised and in a lot of cases get more than the veterans. This needs to be stopped. It is hard enough now to manage on a pension supplemented with a small super contribution to make it last until we die.

Maybe it is only those who have huge super or investments not the average retiree .

 

[Ricci]

I don't pretend to understand all the investment speak above but I think I get the gist of it, I know I'm going to be unpopular for my next comments but here goes. I would suggest that to be a self-funded retiree you must have a certain amount of cash and/or investments behind you, nobody poor is self-funded, and if your income is below a certain level you would get a part pension payment. During your working life you had different taxation rules from people with employer super so you had some gains then. Retirement is at the moment difficult for everyone what with us all having to tighten our belts somewhat. Be grateful for what you have and count your blessings every day.

 

[Glenys R]

As usual self retirees otherwise known as the "new poor" are being hit. It does not pay to work hard all one's life in this country - better to be a blugger and live off everyone else's effort!!!!

 

[Killa]

Australia is operating with a Structural Deficit. As a country we are spending more than the country makes. Any Decisions taken to increase Australia Income will receive criticism from vested interests.
Franking Credits and SMSF are one. These SMSF's who based their investment decisions on a structure that where they depend on an ever-increasing return from the rest of the Taxpayers in the Billions. Not Sustainable.
NDIS whilst a laudable objective is another vested interest with currently an ever-increasing dependence on the Public Purse. Yes, the recipients of NDIS are amongst the more needy of Australian Society, but when the average NDIS Package is $35,000 PA, for currently 11,000 recipients this quickly adds up to $385M per year. The Average will go up along with the number of recipients. Not to mention Fraud and questionable charging rates for NDIS Providers. ($54 per hour under NDIS compared to less than $30 per hour for Aged Care staff)

Mineral Resources including Gas - These Minerals are Australian owned resource. Yes the various companies that extract them have spent $Billions in setting them up. Now they are currently making Multi Billions and most of them are not paying adequate tax / royalties. A method to address this needs to be devised and implemented quickly. Once the resources are gone, they are gone.

You can't take advantage at both ends of the Structural Deficit. You end up being Bankrupt

I know of people who are receiving NDIS ,a couple are over 60yrs old therefore they should be on a aged package , not NDIS . The wife has advanced dementia and the hubby gets services for respite,housework and personal care for his wife . I also know of a man who received an electric scooter through NDIS ,the only dissability he has is alcoholic dementia and he too is over 60 yrs old . I was always under the impression NDIS was meant for those with disabilities from a young age to increase their ability to participate in the community and enhance their lives .

 

[Ricci]

As usual self retirees otherwise known as the "new poor" are being hit. It does not pay to work hard all one's life in this country - better to be a blugger and live off everyone else's effort!!!!

I was sad to read your comments, Most of us worked really hard all out lives, we just didn't have the highly paid jobs that worked towards an easier retirement. I for instance always worked in the service industry which while being worthwhile and fulfilling doesn't do much to fill the coffers. I actually thought that my contribution to society was a worthy cause, I paid all my taxes and dues on time and in full. Are you suggesting I should have pursued a better paying job?

 

[Tristeagan]

As usual, the ones who have worked the longest - most of us since our early teens, and paid huge taxes and 17.75% housing interest are again being slogged. While this is happening, those bludgers who have never worked a day in their lives and some who milk the system get more, never get penalised and in a lot of cases get more than the veterans. This needs to be stopped. It is hard enough now to manage on a pension supplemented with a small super contribution to make it last until we die.

REALLY? Those living solely on a government pension are better off than you because they don't get penalised and are better off than veterans? Oh well then, the answer is simple - give away your money, get a government pension, give up the the house you paid so highly for and live in a rental. I am sure you will be SO much better off. Compulsary super did not come in until most of us were middle aged. Many of us worked in low paid jobs with no capacity to save prior to that. By the time it came in some of us had succumbed to injuries or illnesses that took us out of the workforce. Very few government pensioners never worked a day in their lives, most never milked the system but we paid our taxes too and we make do with the what little we get from the Government without the "small super contribution" and are grateful for it. If you don't make it last until you die you will STILL be entitled to what we "bludgers" get now.

 

[Groovy]

Is there any government that give what they promise? I don’t think so!!
Their promises are made to get them in the top job, after that, whatever is achievable they will follow through, the rest………….

 

[RTS]

Franking credits were introduced to avoid dividends being taxed twice. The company has paid tax on its profit, so the shareholders would not be taxed when those profits were distributed as dividends. If the shareholder is not liable for any tax, they are not entitled to any refund. Pretty simple really.
And can I toss in a word about the whingers banging on about having worked hard all their lives and now being slugged by the government in their twilight years. As a mid octogenarian I am one of that generation, and we had it so good for so long. Plenty of jobs, affordable housing etc etc. In my view, the most blessed generation ever.

I agree that your generation had it good. You're not a baby boomer. We were trying to raise children when interest rates went through the roof, financial crashes, recessions we had to have etc. We were the generation who had to have super too. It's the baby boomers who are being targeted.

 

[lordy]

As usual self retirees otherwise known as the "new poor" are being hit. It does not pay to work hard all one's life in this country - better to be a blugger and live off everyone else's effort!!!!

exactly, too much free money. If only we were 18 again.

 

[Hawk007]

ONE CANNOT AND SHOULD NOT EVER TRUST LABOUR. THIS WILL BE ONLY THE START.

 

[gordon1940]

REALLY? Those living solely on a government pension are better off than you because they don't get penalised and are better off than veterans? Oh well then, the answer is simple - give away your money, get a government pension, give up the the house you paid so highly for and live in a rental. I am sure you will be SO much better off. Compulsary super did not come in until most of us were middle aged. Many of us worked in low paid jobs with no capacity to save prior to that. By the time it came in some of us had succumbed to injuries or illnesses that took us out of the workforce. Very few government pensioners never worked a day in their lives, most never milked the system but we paid our taxes too and we make do with the what little we get from the Government without the "small super contribution" and are grateful for it. If you don't make it last until you die you will STILL be entitled to what we "bludgers" get now.

Firstly, the Age Pension is not an “ entitlement” but a fully tested “ gratuity” made available by Government to Australian Citizens at a certain Age, funded from Taxation, Charges,etc. Secondly, providing for Retirement was available to all. I was no genius but did work a second job to provide for the future. I truly accept that many Workers were unable to do this and contribution by Tax was, and still is, one of my responsibilities.

 

[aquarius123]

Australia is operating with a Structural Deficit. As a country we are spending more than the country makes. Any Decisions taken to increase Australia Income will receive criticism from vested interests.
Franking Credits and SMSF are one. These SMSF's who based their investment decisions on a structure that where they depend on an ever-increasing return from the rest of the Taxpayers in the Billions. Not Sustainable.
NDIS whilst a laudable objective is another vested interest with currently an ever-increasing dependence on the Public Purse. Yes, the recipients of NDIS are amongst the more needy of Australian Society, but when the average NDIS Package is $35,000 PA, for currently 11,000 recipients this quickly adds up to $385M per year. The Average will go up along with the number of recipients. Not to mention Fraud and questionable charging rates for NDIS Providers. ($54 per hour under NDIS compared to less than $30 per hour for Aged Care staff)

Mineral Resources including Gas - These Minerals are Australian owned resource. Yes the various companies that extract them have spent $Billions in setting them up. Now they are currently making Multi Billions and most of them are not paying adequate tax / royalties. A method to address this needs to be devised and implemented quickly. Once the resources are gone, they are gone.

You can't take advantage at both ends of the Structural Deficit. You end up being Bankrupt

I agree with you about the NDIS charging rates. I know someone with no aged care qualifications, just an abn and police check etc. who gets $60 an hour for taking people on outings. Totally unfair on those who have studied to get where they are.