Superannuation, the ultimate government cash cow?

[Junior]

What are the effects of Labors new franking credits policy on those in super funds where you can pick your own shares? For example, you are in an Industry fund that allows you to choose your own shares in the self invest option. You buy an ETF that currently pays quarterly dividends and you also get the franking credits rebated. It is a pension fund.

Will you get the franking credits or will you lose them? It is still an industry fund after all, just wondering as this hasn't been highlighted or debated anywhere??

This is the big question in my mind. If they still allow super funds to rebate franking credits to individual members, then the policy could cause a stampede of partial or full rollovers out of SMSF, and into retail or industry platforms. You could hold all your direct shares through retail/industry funds, and hold all other asset classes through your SMSF. This would further create an uneven playing field, as those holding shares through any non-super ownership structure would not have the ability to use this strategy. It would also mean the alleged savings claimed by Labor would be significantly diluted.

Alternatively, those with SMSF, will need to add Accumulation members to their fund....ie. ensure there are contributing members, so franking credits can still be taken advantage of.

Personally I think if they do manage to kill FC refunds, they will stop industry and retail funds from rebating FCs to pension members, as this would completely undermine the policy.

There are so many problems with this policy.

As stated many times, if they aim is simply to raise more tax revenue from the superannuation system, they should increase earnings tax rates on super and/or pension accounts. This would be way, way more straightforward and have far less unintended consequences.

 

[sptrawler]

This is the big question in my mind. If they still allow super funds to rebate franking credits to individual members, then the policy could cause a stampede of partial or full rollovers out of SMSF, and into retail or industry platforms. You could hold all your direct shares through retail/industry funds, and hold all other asset classes through your SMSF. This would further create an uneven playing field, as those holding shares through any non-super ownership structure would not have the ability to use this strategy. It would also mean the alleged savings claimed by Labor would be significantly diluted.

Alternatively, those with SMSF, will need to add Accumulation members to their fund....ie. ensure there are contributing members, so franking credits can still be taken advantage of.

Personally I think if they do manage to kill FC refunds, they will stop industry and retail funds from rebating FCs to pension members, as this would completely undermine the policy.

There are so many problems with this policy.

As stated many times, if they aim is simply to raise more tax revenue from the superannuation system, they should increase earnings tax rates on super and/or pension accounts. This would be way, way more straightforward and have far less unintended consequences.

I would think it could be challenged, on the grounds of discrimination and unconscionable conduct by the Government against, SMSF's.
They are treating pensions in an Industry Fund, by different interpretations of the tax laws, I personally don't think they will legally be able to do that.
Like I said before, another brain fart by Labor, time will tell.
However if it is proven illegal, and has to be enacted across the board, the retail and industry funds will have a huge accounting issue separating pension income from accumulation income.

 

[Humid]

I agree. There are clearly people in this debate that sing from their party's hymn sheet, and show no sign of independent thinking. Personally, I am a swing voter. I evaluate every policy on its merit, not on which party it's coming from.

On its merit or how it effects you personally?
Run me through the merit of trickle down economics and cutting penalty rates

 

[Bill M]

Why is someone in a super fund using self invest (buying their own stocks) entitled to franking credit rebates, whilst the person in a SMSF buying the exact shares is not entitled to it? Will the supporters of this dumb policy please explain why one person gets it and the other doesn't?

So this has been up for over 24 hours and no answers. I am not surprised,.......

 

[Knobby22]

So this has been up for over 24 hours and no answers. I am not surprised,.......

There not exempt. If they don't make a profit they lose also can't get franking credits

 

[Bill M]

The Self Managed Super Fund Association has done some case studies on the implications of Labor's proposed franking credit policy.

If I could cut and paste it I would but it is in PDF format and won't allow me to do that.

There is one example where one couple owns there own home with 900K in a SMSF. There is also another couple who own their own home but only have 700K in their SMSF. The 700K couple can draw a part pension and therefore are entitled to a full refund of franking credits. Those with the 900K balance lose all their franking credits because they are not on a government pension. Basically the couple on 700K will earn more money each year than the 900K couple.

Here is the link to full correct examples: https://trustees.smsfassociation.co...Franking-Credit-Case-Study-Document-FINAL.pdf

 

[willy1111]

The Self Managed Super Fund Association has done some case studies on the implications of Labor's proposed franking credit policy.

If I could cut and paste it I would but it is in PDF format and won't allow me to do that.

There is one example where one couple owns there own home with 900K in a SMSF. There is also another couple who own their own home but only have 700K in their SMSF. The 700K couple can draw a part pension and therefore are entitled to a full refund of franking credits. Those with the 900K balance lose all their franking credits because they are not on a government pension. Basically the couple on 700K will earn more money each year than the 900K couple.

Here is the link to full correct examples: https://trustees.smsfassociation.co...Franking-Credit-Case-Study-Document-FINAL.pdf

I certainly don't agree with Labor's Franking Credit Proposal.

However, perhaps an alternate view to the above is that the couple with $900K have $200K more than the couple with $700K.

The difference in income between the two is about $7K per year.

It could be suggested that the couple with $200K more, could sell down their assets (eat their capital) by $7K per year and have the same income as the couple with $700K - selling down $7K per year would take 28 odd years assuming no return on the $200K before they were in the same position, ie their capital was down to $700K.

I think someone else mentioned the welfare budget is $175B a year. It's a scary figure. I do think people with money (capital) need to be responsible for funding their own retirement - because they can.

 

[Knobby22]

Yea, it's funny. I saw an article that showed most wealthy retirees won't eat into their capital no matter what and are therefore forced into a pretty poor lifestyle.

As the article points out when you reach your 80s you will struggle to spend anyway and also you can't take it with you.

 

[qldfrog]

All these matters would be sorted by having a universal pension system, everyone is entitled then taxing any revenue in the same way, pension included but not enough rort in that system for our superannuation funds, too simple for our accountants and not enough us vs them..imagine equality for the left, having savers encouraged.. what's next? Rewarding effort?

 

[Bill M]

It could be suggested that the couple with $200K more, could sell down their assets (eat their capital) by $7K per year and have the same income as the couple with $700K - selling down $7K per year would take 28 odd years assuming no return on the $200K before they were in the same position, ie their capital was down to $700K.

If I was faced with this, I would sell down 200K by upgrades to the house, a new car and a round the world cruise for 2 and it would take me less than a year to blow it. Then the Government has to pay me a pension and refund all my imputation credits and I'd be better off. Way to go Labor, it will cost you more in the long run!!!

 

[sptrawler]

I certainly don't agree with Labor's Franking Credit Proposal.

However, perhaps an alternate view to the above is that the couple with $900K have $200K more than the couple with $700K.

The difference in income between the two is about $7K per year.

It could be suggested that the couple with $200K more, could sell down their assets (eat their capital) by $7K per year and have the same income as the couple with $700K - selling down $7K per year would take 28 odd years assuming no return on the $200K before they were in the same position, ie their capital was down to $700K.

I think someone else mentioned the welfare budget is $175B a year. It's a scary figure. I do think people with money (capital) need to be responsible for funding their own retirement - because they can.

When you are talking about these levels of savings, why do without and save the extra $200K in the first place?

 

[Zaxon]

When you are talking about these levels of savings, why do without and save the extra $200K in the first place?

I guess in the back of a lot of people's minds, is what if there's no government pension by the time you're ready to retire? Or what if the retirement age is pushed back so late - let's say 85 to get a government pension, that you're physically not going to be able to work that long? If either of these things happen, you may need to have gone without and saved every cent you could.

 

[basilio]

I think one of the big concerns about retirees is wondering how they will pay the in going bond for a nursing home or similar institution. This is particularly significant if it is for only one partner while the other stays in the family home.

From my experience these organizations demand full financial disclosure of all your assets and the bond is nicely sized to take as much of the these as possible. $500, 600, 700k .

In theory this is not supposed to be the case. In practice - another story.

 

[willy1111]

If I was faced with this, I would sell down 200K by upgrades to the house, a new car and a round the world cruise for 2 and it would take me less than a year to blow it. Then the Government has to pay me a pension and refund all my imputation credits and I'd be better off. Way to go Labor, it will cost you more in the long run!!!

And therein lies the difficulties of means testing.

What if in 2 years they tighten the means testing again down to $500k...would you spend the extra $200k again.

And then a further 2 years down the track they tighten it further again down to $300k.

Now you would be getting really low on capital and be very reliant on the government pension.

An alternative could be to possibly try to hone your skills in trading like Skate has shown in the dump it here thread. Started learning about trading when he was very close to 60, has developed a weekly method by which he buys and sells a few stocks each week to generate a 20% plus return per year on average.

20% of $900k = generating an income over $180k on average...tax free if in pension phase.

Food for thought.

I hope this doesn't come across as an attack on you @Bill M. I'm there would be a lot of people thinking the exact same way as you. And it won't be good for the country, it will just push more people on to the pension and increase the welfare budget.

Then the question becomes do they increase taxes or try to limit the welfare or a combination of both.

 

[willy1111]

When you are talking about these levels of savings, why do without and save the extra $200K in the first place?

I can see where you are coming from.

But at least you now have the option to spend it all now or perhaps find ways to make it work harder.

Pretty sure you've been following skates dump it here thread.

 

[Toyota Lexcen]

Several high profile financial advisers once labor announced their policy recommended selling right down to be eligible for the pension.

Upgrade car, mortgage free, have holidays, renovate house for old age living, keep assets low and income low to receive aged pension.

For a couple at home chillin' out its easy money, why bother, there 158 Billion going to others doing it. You have paid taxes all your life.

And the Libs maintaining 67yrs old for pension.

 

[basilio]

Upgrade car, mortgage free, have holidays, renovate house for old age living, keep assets low and income low to receive aged pension.

Much of this makes sense. First priority is having a bathroom with non slip floors and open shower recess. Exactly like the ones in modern nursing homes. The first reason you or a partner will have to move out of a house will be incapacity to shower or bathe.

Ramps, solar panels to save ongoing power bills, a self contained studio for flexible living opportunities. A small but productive garden. In a couple of years time an electric car. A decent paint and maintenance program.

Regardless of whether one is on a gov pension or private pension trying to ensure a lifestyle that is comfortable but sustainable just makes sense.
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What I do wonder about are the people who lived with incomes and lifestyles of $400-500k plus a year and then then want to continue such living when they arn't making this cash.

 

[sptrawler]

I guess in the back of a lot of people's minds, is what if there's no government pension by the time you're ready to retire? Or what if the retirement age is pushed back so late - let's say 85 to get a government pension, that you're physically not going to be able to work that long? If either of these things happen, you may need to have gone without and saved every cent you could.

The only possibility IMO, is that they will make you spend everything, before you get any pension. Really all Labor have shown, is your a dick, if you are a blue collar worker and save anything.

 

[sptrawler]

And therein lies the difficulties of means testing.

What if in 2 years they tighten the means testing again down to $500k...would you spend the extra $200k again.

And then a further 2 years down the track they tighten it further again down to $300k.

Now you would be getting really low on capital and be very reliant on the government pension.

An alternative could be to possibly try to hone your skills in trading like Skate has shown in the dump it here thread. Started learning about trading when he was very close to 60, has developed a weekly method by which he buys and sells a few stocks each week to generate a 20% plus return per year on average.

20% of $900k = generating an income over $180k on average...tax free if in pension phase.

Food for thought.

I hope this doesn't come across as an attack on you @Bill M. I'm there would be a lot of people thinking the exact same way as you. And it won't be good for the country, it will just push more people on to the pension and increase the welfare budget.

Then the question becomes do they increase taxes or try to limit the welfare or a combination of both.

Problem is, they will just keep changing the rules, to force you into the industry funds.
What have Labor suggested over the last few elections?
Tax earnings above a certain threshold.
Tax the Family Home.
Tax the franking credits.
It's pretty easy, just keep taxing untill you roll over into a union fund.

 

[sptrawler]

Much of this makes sense. First priority is having a bathroom with non slip floors and open shower recess. Exactly like the ones in modern nursing homes. The first reason you or a partner will have to move out of a house will be incapacity to shower or bathe.

Ramps, solar panels to save ongoing power bills, a self contained studio for flexible living opportunities. A small but productive garden. In a couple of years time an electric car. A decent paint and maintenance program.

Regardless of whether one is on a gov pension or private pension trying to ensure a lifestyle that is comfortable but sustainable just makes sense.
_____________________________
What I do wonder about are the people who lived with incomes and lifestyles of $400-500k plus a year and then then want to continue such living when they arn't making this cash.

Those on that sort of money, will still be on it when they retire, they will be on boards of companies or own small companies.
To think that they are the ones Labor are targeting, is way off the mark.IMO