Retirees hit hardest by franking credit changes, says FSC

The survey, which looked at 14 retail super funds, found that many super fund members with low balances benefit from refunds. 

While refunds provide a smaller average benefit for individuals in large super funds than for SMSFs, the FSC study shows the impact on some members could be significant; over a lifetime, the benefit of refunds could add up to a considerable figure, up to $55,000 at retirement.  

Refunds of franking credits mean an Australian investor in local shares pays the same overall tax as an investor into other Australian assets including bonds, term deposits, property and infrastructure.

In a submission to the House of Representatives economics committee, the FSC expressed its support for refunds of franking credits, expressing fear that restricting refunds would impose a potential tax penalty on some low-income earners, retirees and super funds if they invest in shares.

“The FSC considers that franking credit refunds should continue. They provide substantial support to the retirement savings of millions of Australians — including many with fairly modest savings,” said FSC chief executive Sally Loane.

“Constant tinkering with the rules on retirement savings and superannuation, and hitting retirees hardest, will only erode confidence in the system, leaving more Australians reliant on the age pension.”     

In its submission, the FSC said franking credit refunds benefited up to 2.6 million members of large super funds in 2015-16 and up to 3.5 million members in 2014-15. 

Four of the surveyed funds had an average balance below $100,000, with there being 73,000 accounts across them, and refunds increased returns to all fund members on average by 0.26 of a percentage point per year.

There were also 33,000 surveyed super accounts where the average benefit of refunds was more than 0.3 of a percentage point per year across all fund members.

The FSC noted this increase over a working life of 0.3 of a percentage point would increase retirement savings for a typical full-time worker by about $55,000, based on Productivity Commission methodology.

There were 66,000 retiree accounts in the surveyed funds; if the retirees received the benefit of the refunds then the average benefit per retiree was $850 per year.

According to the study, refunds also provide a significant benefit to small APRA regulated funds, of many thousands of dollars per year on average, increasing average returns by up to 4.2 per cent per year.

The FSC said, in addition, more than $100 billion invested in managed funds outside of super receive significant benefits from refunds.

Ms Loane said the FSC supports a moratorium on adverse changes to the superannuation system, including changes to franking credit refunds.

“A more stable superannuation system will encourage engagement and confidence in the system and increase self-reliance in retirement,” she said.

“If policy makers keep moving the goal posts Australians will disengage with the super system and stop contributing more to their superannuation.”