Finance & Accounting

Retirees and Superannuation – Which side are you on?

This retiree is happy to see the end of cash refunds on franking credits. SMSF legislation change is looming, and retirees are worried. Hear two important view points.

Self-funded retiree Jim Pembroke stands to lose $8,000 a year of income if the Labor party wins office and goes ahead with its plan to scrap franking credit cash refunds for retirees with self-managed super funds……

When reading the news this morning, I stumbled across an article that highlights two different view points on the looming changes that will come if Labor wins.

Key Points

Self-funded retirees split on issues of cash refunds for franking credits

Some think government could better use refund money on other programs

Others think it is unfair that this rule change will cut their retirement income

Do you agree?

Couple number one:

“I’m now a second-class retiree with shares” Steve and Linda Taylor are in a similar financial position to Jim Pembrok but they hold a different view.

  • As self-funded retirees, they pay no tax on an income of about $75,000 a year
  • This includes about $20,000 from the refund on franking credits
  • This is because income from a superannuation fund is not taxed at all
  • This is a quarter of the money they get from their shares, which is a third of the money they live on.

This might seem large but following a Howard/Costello tax change in 2000, retirees can now earn a much higher amount than people working without paying tax due to the seniors and pensioners tax offset (SAPTO).

  • A single retiree can earn up to $32,280 a year and not pay any tax.
  • This compares generously with a working person who starts paying tax at 19 per cent for each dollar earnt over $18,200.

They live a comfortable life, but their view comes from frustration that after years of careful planning and investing for retirement, they now feel they could be penalised by a change in rules.

“I wouldn’t mind if their rule was that everyone lost their banking credits” “My point is that I’m now a second-class retiree with shares.”

People on pension or part-pension are exempted from Labor’s changes.

Steve and Linda (couple number two) think that if the changes are made, retirees like them may sell off assets to enable them to qualify for the pension.

Couple Number two:

……And he doesn’t mind one bit

“When i though about it i realised it was something that i did not earn” he told 7.30.

“It was something that they were giving me just for owning shares”.

Jim and his partner Therese Otago are among an estimated 900,000 self-funded retirees who will be affected if the rules change around franking credits.

This couple mentions they have:

  • $1.2 million in their self-managed super fund
  • A pretty modest 1986 timber boat
  • And, an imported Japanese camper van.

That’s it – they chose to use their super to fund their lifestyle, they don’t own any property and don’t own a house.

The self-described progressive voters think the more-than $5 billion spent each year on refunding franking credits to retirees could be better used elsewhere.

So let’s break this down:

  • Jim and Therese have $1.2 million in the bank
  • A single pensioner receives $838.40 a fortnight or $21,798.40 a year
  • That makes their self-funded super funds to represent 50 years of the Government’s aged pension.

Jim and Therese are looking at the bigger picture – who needs assistance? 50 years of the aged pension? 100 years of the aged pension? or someone who’s struggling on the aged pension?

What are Franking Credits?

Franking credits, dividend imputation and a “retirement tax” – what these buzzwords mean for you.

As with all changes – there will be winners and losers.


Contact Power2 to find out how to be a winner.

SMSF allows you to have control over the design and operation of your fund. Have peace of mind knowing we can be adaptable and intuitive. When it comes to your finances we will continue to put your best interests at heart. No matter what changes in legislation may come or go.

Information provided is general advice only and does not take into account your personal objectives, financial situation or needs.  Before acting on this information you should consider the appropriateness of the information having regard for your own circumstances, personal objectives, financial situation and needs.  When deciding whether to acquire or continue to hold a financial product(s), you should first obtain and consider the Product Disclosure Statement(s), Information Statement(s) and/or other relevant product documentation relating to that product(s).