Ceasing refundable franking credits to cost 2.6 million APRA fund members

Labor’s policy to stop refunds of franking credits isn’t only of concern to SMSF members, with up to 2.6 million members of APRA-regulated super funds also to be impacted.

Research by the Financial Services Council (FSC) indicates that up to 2.6 million members of APRA-regulated super funds (both large funds and Small APRA Funds) could be affected by stopping refunds of excess franking credits.

The FSC has set this out in a submission to the Parliamentary inquiry into removing refunds of franking credits – which is holding public hearings this week. The submission does note that 2.6 million is an “upper limit” to the figure, due to duplicate accounts.

It has been suggested that large funds would not be as impacted as SMSFs, by offsetting franking credits against other tax owing instead of receiving a refund. But exactly how Labor’s policy would impact large superannuation funds is unclear as there is no draft legislation.

The Government has said that around 2.6 million APRA-regulated fund members would be affected – losing refunds which were worth around $300 million in 2015/16. Labor Shadow Treasurer Chris Bowen questioned the figures at the time, saying it was “absolutely meaningless” to aggregate small and large APRA-funds.

The FSC has now reached similar figures – its research is based on similar or the same data – putting the total refunds claimed by all APRA-regulated funds in 2015/16 at $308.8 million. Around $235 million of this relates to large APRA funds, with the remaining $74 million going to Small APRA funds (SAFs).

The FSC estimates that in 2020/21 removing refunds of franking credits will cost large APRA-regulated funds $301 million and cost SAFs $20 million.

The FSC is also critical of the “unlevel playing field” created by Labor’s ‘Pensioner Guarantee’. Shortly after the original policy was announced Labor tweaked it to exclude Age Pensioners and SMSFs with members receiving the Age Pension at that date.

“Many of the large funds that benefit from refunds have a substantial number of retiree members…, and some of these retirees will receive the Age Pension,” says the FSC in its submission.

“These pensioners would not benefit from a policy that only provides franking credit refunds to SMSFs with Age Pensioner members.”

FSC CEO Sally Loane said: “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.”

“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.”

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

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