Powered by momentummedia
nestegg logo
Powered by momentummedia
nestegg logo
nestegg logo

Save

Middle, low-income retirees to wear 15% loss under new policy

By Reporter · November 13 2018
Reading:
egg
egg
egg

Save

Middle, low-income retirees to wear 15% loss under new policy

By Reporter
November 13 2018
Reading:
egg
egg
egg
rate percentage

Middle, low-income retirees to wear 15% loss under new policy

author image
By Reporter · November 13 2018
Reading:
egg
egg
egg
rate percentage

New modelling has found a significant opportunity cost in the ALP’s controversial tax policy, with modest earners set to be 15 per cent worse off in retirement if it goes ahead.

Earlier this year, the federal opposition announced plans to scrap cash refunds on dividend imputation credits.

The policy intent is to stop and prevent high income earners and SMSF members with big balances from exploiting or disproportionately benefiting from tax concessions, relative to low and middle income earners.

However, the policy design has been picked apart by the SMSF community, and it appears the policy will actually hurt the portfolios of those it’s looking to benefit.

The most recent data analysis from SuperConcepts, an SMSF administration and software house, shows that retirees with an account-based pension receiving $45,000 per annum at age 65 will find themselves 15 per cent worse over a 20-year period.

Advertisement
Advertisement

SuperConcepts’ calculations are based on the common portfolio make-up of an SMSF. It assumes a 40 per cent allocation to Australian shares, 3 per cent capital growth and a 4 per cent income return. The calculations also assume the SMSF has one member with a retirement phase interest in the fund.

Based on those assumptions, analysis shows that the member’s closing balance after 20 years would be $825,519 if refundable franking credit were removed, compared with $953,480 if refundable franking credits were not removed.

“This equates to a significant impact on the fund’s earning rate and the total income received per annum,” said SuperConcepts general manager of technical and education, Peter Burgess.  

“In year one the total income received including franking credits is $36,771 compared to $30,600 if refundable franking credits were removed. After five years the income differential is $7,631 per annum and after 10 years the differential is $9,207 per annum,” he said.

“As a consequence, after 10 years the member’s minimum annual pension entitlement would reduce from $60,756 to $56,762 and after 20 years from $88,298 to $76,991,” he said.

How will you fare under the reforms?

For more about the real-word impact of these reforms, and if they are likely to impact you and your portfolio, click here for our extended analysis.

Middle, low-income retirees to wear 15% loss under new policy
rate percentage
nestegg logo

Forward this article to a friend. Follow us on Linkedin. Join us on Facebook. Find us on Twitter for the latest updates
Rate the article

Join the nestegg community

We Translate Complicated Financial Jargon Into Easy-To-Understand Information For Australians

Your email address will be shared with nestegg and subject to our Privacy Policy

From the web

Recommended by Spike Native Network

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.