Are Age Pensioners exempt from Labor’s policy to stop refunds of franking credits? The answer is: mostly.
Labor frequently says that pensioners are exempt from their franking credit policy, and to a large extent they are, but the details are more complicated.
What is Labor’s ‘Pensioner Guarantee’?
When Labor first announced it’s franking credit policy there was no exemption for Age Pensioners – they would lose refunds of franking credits like other people. But two weeks after the announcement Labor changed the policy, adding what has been called the ‘Pensioner Guarantee’.
Under the Pensioner Guarantee, Age Pensioners and recipients of some other payments, would continue to receive refunds of franking credits.
Who is covered by the Pensioner Guarantee?
Labor says, in its updated factsheet on the franking credit policy, that “every recipient of an Australian Government pension or allowance with individual shareholdings will still be able to benefit from cash refunds”.
This includes recipients of the:
- Age Pension
- Disability Support Pension
- Carer Payment
- Parenting Payment
- Sickness Allowance
Note the ‘individual shareholdings’, this is an important detail often left out of the rhetoric.
As Shadow Treasurer Chris Bowen recently said on Q&A: “All pensioners with individual shareholdings are exempt, and all pensioners with a Self-Managed Super Fund at the date of our announcement are exempt. And there are very, relatively, few pensioners with a Self-Managed Super Fund.”
“Therefore the Pensioner Guarantee is very clear that we will not impact on pensioners.”
SMSFs grandfathered, from date of announcement
SMSFs will be exempted, provided at least one member was a recipient of one of the pensions or allowances on 28 March 2018.
Labor says this is necessary for the integrity of the policy. Labor doesn’t want SMSFs to “game the system”, in the words of Chris Bowen – arranging for pensioners to join funds in the future to keep refunds of franking credits. Though this also means that some Age Pensioners will loose franking credits.
The Coalition says, referring to ATO data, that around 5,000 SMSFs a year are either started by someone receiving the age pension, or an existing fund has a member start to receive the age pension. Labor questions these figures, but hasn’t provided their own estimate.
While it is quite clear what will happen around SMSFs, it is less clear what will happen to Age Pensioners with accounts in other types of super funds. The policy factsheet only mentions individual holdings and SMSFs, not APRA-regulated super funds. While many larger industry and retail super funds pay tax, not all do. Industry bodies have said some non-SMSFs will be impacted by the stopping refunds of franking credits – the Financial Services Council says up to 2.6 million members of APRA-regulated super funds (including both large super funds and small APRA funds) could be impacted.
The exact detail of the Pensioner Guarantee will depend on the legislation, which won’t be released before the election.