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

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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.

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
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Neil - I retired about a year ago and now I've got less income than I planned for. Can I sue my financial planner?....
Joe - Agree with Terry Dwyer. The really nasty part is the way it will hit self funded retirees (through their SMSF in many cases) who have direct shares.......
John - Not sure loss of 30% of income is something I just let go. Options I will be doing is investing overseas, local and international REITs and seeing if.......
Dr Terry Dwyer, Dwye... - I am amazed by these comments. The effects will be subtle but pervasive. It will have a huge effect on superannuitants in pension mode as with low.......