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Pensioner exemption doesn’t go far enough: SMSF Association

Pensioner, retirement

Labor’s move to exempt pensioners from its dividend imputation reform plan has left the SMSF Association unmoved, with its CEO reaffirming the group’s “serious reservations”.

Shadow treasurer Chris Bowen confirmed on Tuesday that pensioners will be exempt from its plan to scrap the cash refunds for excess dividend imputation credits.

SMSFs with at least one member receiving a pension prior to 28 March 2018 will also be exempt from the proposed changes, under what Labor is calling a “Pensioner Guarantee”.

Despite this policy softening, the SMSF Association is unimpressed.


CEO John Maroney explained, “The amended policy excludes similar protection to self-funded retirees, many of whom draw their retirement income from retirement savings built over the lifetime in an SMSF to avoid relying on government support.

“These retirees have depended on receiving a refund of the excess company tax paid above their SMSF’s marginal tax rate on company profits to supplement their income in retirement.”

He said SMSF members have built their retirement savings strategies around the assumption that refundable franking credits would persist.

However, only SMSFs with at least one member receiving a pension will be exempt and therein lies the problem, Mr Maroney argued.

“In the future, there will be no protection for SMSF retirees who may need part government support to supplement their superannuation income, creating an unfair, two-tiered and complex treatment of SMSF members who access the age pension in retirement,” he said.

Continuing, the CEO contended that the Pensioner Guarantee will serve to exacerbate the negative effects of Labor’s proposed reform.

Mr Maroney argued that self-sufficient SMSF members could potentially be worse off than people with less savings but with refundable franking credits and part pensions.

“The end result is to reduce people’s incentive to save for retirement to achieve self-sufficiency,” he said.

The SMSF Association gave an example comparing two couples receiving either no age pension, or a part age pension.

The first couple owns their home and has an SMSF worth $700,000. They receive a part pension of $9,900 in addition to an SMSF income of $35,000, franking credit income of $6,000. This means their total income is $50,900.  

On the other hand, a couple who doesn’t receive an age pension and has an SMSF worth $900,000 and SMSF income stream of $45,000 would lose their $7,700 in franking credits, leaving them with an income of $45,000.

Considering this example, Mr Maroney said that while the SMSF Association agrees with the move to exempt pensioners from the proposed reform, it maintains “serious reservations” around the efficacy of the scheme in general.

Pensioner exemption doesn’t go far enough: SMSF Association
Pensioner, retirement
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