Advisers bemoan anti-SMSF policy amid super industry split
Labor’s plan to scrap franking credit refunds will give superannuation funds linked to banks and unions a leg up while potentially knocking self-managed super funds off their strong growth trajectory.
Yet the groups representing pooled super funds that stand to benefit are at odds with each other over whether to support the plan.
Industry Super Australia, which works on behalf of union-aligned funds such as Australian Super, reckons it is “sensible”.
“Industry super funds will advocate that some of the savings be used to address existing weaknesses in the retirement income system such as the gender super gap,” ISA chief executive David Whiteley said.
But the Financial Services Council, representing the bank-owned “retail” funds, says more changes to super are unwelcome, especially if they increase reliance on the age pension.
The super industry’s umbrella group, the Association of Superannuation Funds of Australia, which is populated by both industry and retail funds, is sitting on the fence. It wants to see more detail about how people on low and modest incomes will be affected.
If Labor is elected and franking credits become non-refundable, pooled funds regulated by the Australian Prudential Regulation Authority will become a more attractive prospect because they will be able to generate higher after-tax returns, experts say.
Go to waste
This is because these funds have lots of members who are still in accumulation phase and therefore paying tax. They will continue to make full use of all of the franking credits they receive, whereas SMSFs have only a few members and, if in pension phase, have no tax liabilities to offset. Without refundability, their excess credits will simply go to waste.
“Retirees could wind up their SMSFs and transfer into APRA-regulated funds where the franking credits have value because they can be offset against other taxable income,” advisory firm Rice Warner has predicted. SMSFs have been growing in size and membership.
“We have seen Industry Super Australia support the change but of course they would,” he said.
Complexity and cost
“For pooled super funds, like the funds that are members of ISA, they carry a tax liability large enough to utilise the franking credits but why should someone be penalised for wanting to move the super away from an industry fund and take control of their financial future via a SMSF?”
Over the five years to June 30, 2017, growth in the number of SMSFs averaged almost 5 per cent a year.
Total contributions jumped by 21 per over that period, which is significantly higher than total contributions to all funds, which grew at 16 per cent.
More than a million have an SMSF and they collectively hold $697 billion in assets.
Yet there is some evidence that people are starting to turn away from SMSFs, with investment flows from pooled funds to SMSFs falling 5 per cent to $6.5 billion in the 12 months to September 2017. Complexity and cost make running an SMSF unattractive for some.
The above article was part of a interview with the Australian Financial Review