Submission: Labor franking credit policy reduces competition and choice

Nov 26, 2018, 11:15 AM

Superannuation administration fees would naturally rise due to reduced competition and choice in the sector if Labor’s franking credit policy was made law, according to a submission made to the parliamentary inquiry.

SuperConcepts filed a detailed submission with the Standing Committee on Economics investigating the proposed policy, outlining that the removal of refundable franking credits mostly affects self-funded retirees and would disrupt the crucial ‘tax neutrality’ balance in the superannuation industry.

“A self-funded retiree with an SMSF will not be eligible to receive a refund of excess franking credits, while it appears that same individual in most public offer funds will continue to benefit from refundable franking credits,” said Peter Burgess, SuperConcepts General Manager of technical and education services.

“Furthermore, the proposed pensioner guarantee does little to protect SMSF members from the impact of removing refundable franking credits and, over time, is likely to exacerbate the disruption to tax neutrality.

“The guarantee will apply only to an SMSF if one or more members of the fund were receiving a Centrelink pension before 28 March 2018. This ‘at a point of time’ approach means an SMSF that didn’t qualify for the pensioner guarantee but has members who qualify for a Centrelink pension sometime on or after 28 March 2018, will still not be eligible for a refund of excess franking credits.

“This is despite this same member presumably being entitled to receive a refund of excess franking credits had they chosen an alternative retirement savings vehicle.
“The same applies to new SMSFs established on or after 28 March 2018. These funds will not be entitled to the pensioner guarantee and will be denied access to refundable franking credits regardless of the assets of their members and their entitlement to Centrelink benefits. 

“For many existing and prospective SMSF members, this is likely to be a significant factor when weighing up the merits of an SMSF.

“As the Assistant Treasurer recently stated, SMSFs play a valuable role in allowing people the choice to exert more control over their retirement savings, and they also provide a more competitive dynamic in the superannuation sector”, Mr Burgess said. 

It is widely accepted that the SMSF sector is a well-functioning part of the superannuation industry. The Cooper Review, which concluded its review of the Superannuation industry back in 2010, found that the SMSF sector was well performing, was efficient and allows many Australians to meet their retirement income goals. 

The more recent Financial System Inquiry saw significant scope for the superannuation system to meet the needs of superannuation fund members better and provide broader benefits to the financial system and the economy. 

“SMSFs are well paced to meet the needs of members and the broader financial system as they foster full member engagement and self-reliance in retirement,” said Mr Burgess.

“The existence and success of the SMSF sector over many years has put downward pressure on administration fees and continues to foster higher levels of investment choice and member engagement across the entire superannuation industry. 

“You don’t need a PhD in Economics to understand the basic tenets of supply and demand, and if the SMSF sector is weakened then the flow on effects will be felt by members in other superannuation sectors as well”, Mr Burgess said.

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Media contact: Garth Montgomery

0408 864 851