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The Daily Telegraph: Labor’s franking credits: what the experts advise

Hang tight — that’s the clear message experts have for the million or more people fearing the impact of Bill Shorten’s proposed changes to retirement incomes.

“Don’t act yet — until Labor get it through the Senate,” said Plato Investment Management chief Don Hamson.

“I think there’s a reasonable chance they’ll have to do some (further) exemptions and it might look quite different.

“Or it might not get through at all,” Dr Hamson said.

Dixon Advisory managing director Nerida Cole said “I think it’s too early to make any recommendations”.

“We don’t know what it’s really going to look like yet,” said Focus Superannuation’s Sharon Osborn.

RiceWarner founder Michael Rice said he didn’t think Labor would get its changes done in time for its proposed July 1, 2019 start.

“There will be plenty of time to do things,” Mr Rice, one of the top experts in the industry, said.

Plato Investment Management chief Don Hamson urges against acting too soon. Picture: AAP Image/Steve Pohlner

Still, many people are already seeking personal advice from an expert about what their future options may be — and that’s smart.

Generally, for a person in an SMSF who isn’t covered by Labor’s “pensioner guarantee”, the options include:

• Changing the fund’s holdings away from Australian shares that generate franking credits to investments such as property trusts and/or overseas stocks; or

• Bringing children into the SMSF so the fund’s franking credits can be used to offset their super tax bills; or

• Moving to a fund which can still make use of franking credits because there are enough members paying tax.

That last option is the simplest. And union-linked industry funds may be the best bet.

They are set to be unscathed by Labor’s plan, said Focus’s Mr Osborn after analysing their annual reports and tax liabilities.

“The major ones are in a position where they are not going to be affected by the change,” she said.

Dixon Advisory head of advice Nerida Cole says it’s too early to make recommendations.

Some offer investment options which can be like having a self-managed super fund — without all the hassles. An example is AustralianSuper’s Member Direct option.

More left-field ideas include buying New Zealand companies listed on the ASX, which pay their franking credits in cash. Kiwi stocks on the local bourse include online auctioneer Trade Me Group and telco Chorus.

People receiving a part age pension who are in an industry or retail super fund may be affected by Labor’s changes because the “pensioner guarantee” doesn’t apply to them.

If your fund hasn’t told you already whether it is likely to lose some of the value of its franking credits, it should do so soon.

Plato’s Dr Hamson has estimated any fund with at least 70 per cent of its assets belonging to retirees is at risk. TAL, Perpetual and Mercer funds are above or near that level.

The level at which there is a negative effect could be as low as 50 per cent of assets, according to Dr Hamson, which brings funds offered by MLC and Fiducian, among others, on to the radar.


Written by John Rolfe

This article was originally published in The Daily Telegraph