MPs have been urged not to remove cash refunds for franking credits.
Average Australians in large superannuation funds are the individuals who benefit most from dividend tax refunds, the Financial Services Council (FSC) has told the parliamentary inquiry into franking credits.
A federal parliamentary committee is examining the issue of cash refunds to retired individuals who pay no tax on their superannuation income.
Earlier in the year, the Labor Party said that if it was elected, it would abolish the refunds for franking credits, also known as imputation credits, other than for low-income pensioners. These are created when a listed company pays tax on a dividend on behalf of a shareholder.
If that shareholder is a retiree who is not liable for tax, currently the tax is refunded to the individual.
The FSC, which represents retail superannuation funds, funds managers, life insurers, financial advisers and trustee companies, is arguing for the retention of credit refunds.
It has also called for a moratorium on adverse changes to the superannuation system.
In a submission, the FSC has presented findings of a survey of 14 super funds and the average impact of franking credits on their members. It found that:
- if the benefit of refunds applies only to the 66,000 retirees in these funds, then each member receives on average $850 a year
- the fund with the largest average benefit had retirees receiving $5800 a year
- there were five funds with about 32,000 retiree accounts that received more than $1000 a year
- there are 62,000 retirees in funds with an average balance below $400,000 which would be collecting an average $820 a year in credit refunds.
The FSC said members of this latter group, which comprised 94 per cent of all surveyed accounts, could be receiving a part Age Pension.
The average balance across all the members of the surveyed funds is $198,000.
"Franking credit refunds are important to many Australians who are members of super funds, particularly retirees, and other managed funds," the FSC said.
"This is shown in data from Treasury and the Parliamentary Budget Office. In 2015-16, refunds were worth $235 million to large super funds, with 50 funds receiving refunds equal to 21 per cent of funds."
Modelling done by the FSC estimates that over a working life of 46 years, the credit refunds could increase retirement savings by about $55,000 or 6.6 per cent for a typical full-time worker.
FSC chief executive 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," Ms Loane said.
The parliamentary committee will hold two public hearings this month and is likely to continue deliberating on the implications of removing refundable franking credits into next year, a spokesperson told YourLifeChoices.
So far, almost 240 individuals and just a handful or organisations have made submissions to the inquiry. The committee will continue to accept submissions for the foreseeable future, the spokesperson said.
Will you be caught short if the Labor Party succeeds in ending cash refunds for excess franking credits? Do you believe that retirees are entitled to cash refunds if they are on a zero tax rate?