“A lot of retirees have actually built up their portfolios, set up their investments, including the value of franking credits under the existing rules and suddenly if this comes in people will lose a lot of money,” Plato Investment Management Limited managing director Dr Don Hamson said in Sydney on Tuesday.
He warned that under the proposed reform, retirees could stand to “suddenly lose” $10,000 – “and they’re not extremely wealthy people”.
Speaking to mark the launch of Plato’s petition against Labor’s proposal, Mr Hamson said the petition was a reaction to the “discriminatory nature of the proposal” against SMSFs.
“If you look at this proposal, mum and dad SMSFs are going to be at a distinct disadvantage going forward,” Mr Hamson argued.
“Even if you only have $100,000 in a SMSF and every member of the fund is retired, you're not going to get any franking credits at all. But if you had $100,000 in your own name and you were retired you'd get franking credits on that. A couple could have $800,000 and get the full franking credits if they invest in their own name and if they had an SMSF they'd get nothing.”
Continuing, he noted AustralianSuper’s confirmation that members would still receive franking credits, thanks to the 95 per cent of their members still in the accumulation phase.
“So you could have $3.0 million in [AustralianSuper] as a couple, and you'd get the full refund of the franking credits. If you had that in an SMSF you'd miss out. If you had that in your own name you'd miss out,” Mr Hamson said.
He predicts financial planners will pay more attention to the super funds that will give full refunds, should Labor’s proposal become reality.
Responding to questioning around whether the proposal, which has been characterised by Labor as a means of redistributing wealth, aims to keep wealth in the hands of the rich, Mr Hamson acknowledged there are some SMSFs with enormous sums of money.
“Here's the issue, you can be not-wealthy and still be stung,” he said.
“The average SMSF has only got $500,000-600,000. It's very skewed, there are a few that have got a huge amount of money but the $1.6 million balance cap mean that at least they're going to be taxed at that level.
“If you were aiming at the tall poppies there’s be simpler ways of doing it.
“One would be for Labor to say you can only have $1.6 million in super full stop and that's enough for a reasonable retirement. Not only can you only have $1.6 million in your pension, you can only have $1.6 million in super, full stop.”
Mr Hamson also proposed a more “targeted approach”, which allows cash refunds on franking credits up to a limit of $10,000-20,000 per person.
“There are a few of those [ultra-wealthy SMSFs] but if you want to do that [target their wealth] why don't you actually target them and not just have this blanket thing that affects some not-that-well-off and the well off?” he said.