Not after March (I think) last year, It now looks like they will still be hit if they move to a union fund.
The economic and political catches in tax and superannuation changes usually come from the unintended consequences. And so it is with Labor’s franking credit refund changes.
Disclosure of the broader than expected ramifications of this policy mean it affects a much larger share of the population and could be politically damaging late in the election campaign.
The latest revelations came to me from an informed and diligent superannuation fund member and were reported by James Kirby today. They demonstrate that millions more Australians are likely to suffer financial disadvantage from Labor’s changes than previously understood.
The major industry superannuation funds, often unofficially aligned to the ALP because of strong union links, have been happily reassuring their members that they will not be affected because the funds derive their benefit from franking credits used against the tax they pay, reducing their tax liability rather than qualifying them for refunds.
But the catch is that these same funds have paid the equivalent of the refunds to fund members in the pension phase because, of course, if they were treated as a separate group or individually they would quality for the refund (the taxes paid by the fund are incurred primarily on the accumulation side of the operation).
So until now everyone has been happy.
But if Labor win the election and the franking credit refunds are scrapped there will be no reason for the funds to pay the equivalent benefit to their pension phase members. This would lead to a reduction in earnings credited to about 500,000 retirees.
Alternatively, as is believed to be more likely, the funds could decide to continue to pay the franking credit benefit, in which case the burden will be carried by many millions of workers in the accumulation phase who will cross-subsidise the retirees by sacrificing some of their earnings to look after them.
As Kirby highlighted, superannuation rules dictate that all members are treated equally, so the answer here is not clear cut. And he quotes industry insiders who say they are waiting not just to see whether Labor wins but to peruse the exact details of the legislation before they can work out what their internal fund management responses will be.
But this much is clear, until now industry fund members have been told that they will be unaffected by Labor’s franking credit refund changes — whether they are one of more than ten million workers in the accumulation phase of their super or one of hundreds of thousands in the retirement pension phase.
Yet now we know one of those groups, or possibly both, will have their earnings reduced as a consequence of Labor’s changes.
