ALP’s franking credit proposal seen to hit lower-income retirees blog image

ALP’s franking credit proposal seen to hit lower-income retirees

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According to data analysis done by SuperConcepts, the Australian Labor Party’s (ALP) proposal to remove franking credit refunds will hit lower-income retirees hardest.

A 20-year projection of different income levels confirmed that retirees with an account-based pension receiving a minimum pension amount of $45,000 per annum at age 65 will be 15% poorer in retirement savings.

According to the report’s author and SuperConcepts General Manager Peter Burgess, “Our data analysis supports a view that the Federal Budget will receive much less than the projected $55 billion over 10 years from this measure and that the budget savings will not come from high net worth individuals, rather it will come from the lower end of the income spectrum.”

The report showed that the member’s closing balance after 20 years would be at $825,519 compared to $953,480 if refundable franking credits were not removed.

He also added that removing franking credit refunds would have a serious effect on the fund’s earning rate and on the total income received per annum.

“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. 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.

“This is due to their retirement phase benefit being replenished at a lower rate as pension payments are made, resulting in a quicker depletion of their superannuation assets. While the member in this example could increase their pension payments above the annual minimum requirement, this would accelerate the depletion of their capital and increase their dependency on the age pension at an earlier age,” Mr Burgess explained.

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The alarming data was recently submitted to the House of Representatives Standing Committee on Economics.


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