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!

 

[Glo72]

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.

I agree. My husband and myself live on government pensions,it is hard but we manage. We both worked until my husband got sick and I became his carer.

 

[biribo]

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.

Yes too many middle class over privileged paupers these days ...

 

[biribo]

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.

Originally set up as a perpetual fund paid for by a percentage (%) of workers wages, over and above tax, taken from weekly pay packets to fund it. This built up to a considerable amount and was then relegated to General Government Revenue and miraculously disappeared ... hence now being funded from Taxation, Charges,etc.

It was originally the peoples money contributed out their own pockets, which earned interest to fund it further, and the government of the day absconded with it.

 

[Aussie all the Way]

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.

How absolutely WRONG and insulting you are to tell me the Pension I receive after paying Taxes which I was told would come back to me in the form of a Retirement Pension is nothing more than a TIP for all my hard work. Here's an idea get all the lazy so and so's that have been on New Start and test the NDIS receivers for longer than 2 years and get them out into the work force. Oh no we can't do that because there would be such an outcry from those very noisy 2% ers that think everyone is entitled to everything. What happened to people if they wanted a child they paid their way, they saved to take time off work, it's called sacrifice (what does that word mean I hear you very selfish no hopers saying) look it up. Now days what do we have, you get paid to have children you get the child care for next to nothing you don't insure cars, houses, travel, you put your hand out for it all. Pensioners should be paid minimum wage, no married or single just the one payment simple. I payed 17.5% mortgage on my house and yes I was single but I did it, I also had $200,000 wiped off my Super in the 90's when the GFC hit, I have survived like most of us who grew up and worked in those times.

 

[Ezzy]

When l retired in 1995 with work related injuries @ age 47 l had no Super so l have had to rely on Govt handouts since then & as we know, it is not easy!
I have worked for a self-funded retiree who was well off financially & owned her own house etc. but was as tight as a you know what in some areas but reverse in others. Spend $2 on petrol to go shopping because she was a shareholder in a grocery company when just 100m away was a competitor grocery co. I think dividends would almost have paid all her petrol & nothing else in a year.

Fortunately for me my vote never went to the Labour Party. People have stated we cannot trust Political Parties prior to an election & you are correct.
If we could stand behind them while they are making these promises would they have a hand behind their back with fingers crossed??
We know what this means don't we???