A survey of investors has found the Australian Labor Party’s (ALP) proposed changes to Australia’s dividend imputation system would result in nearly half (44%) of respondents expecting to be more reliant on the aged pension.
Increased dependency on the Government’s aged pension, would mean a reduction in the savings the ALP estimates its proposed policy would achieve, according to Plato Investment Management Limited (Plato).
The survey, undertaken by Plato in October 2018, found 92% of respondents believe the proposed policy reduces the incentive to save for retirement.
Dr. Don Hamson, Managing Director of Plato, said the majority of the 1400-plus respondents (93%) believe they will lose franking credits if the ALP wins the next election and proceeds with the current version of their proposed policy.
Of the 86% who know roughly how much franking credit tax refund they currently receive, more than half (56%) get over $10,000 a year, while a quarter receive (53%), $5,000 to $10,000. This is a lot of money they could miss out on.
Commenting on the sentiment of respondents, Dr. Hamson said: “97% of respondents think the changes are unfair, with 93% saying very unfair.”
“The vast majority of the people we surveyed – 93% – think their stress levels will rise, as a result of the financial impact the proposed changes will have on them. Some 92% think the Australian retirement system will be more complex than it already is.”
The proposed policy could also prompt many pension phase investors to change their asset allocation, with a preference for investing in global stocks – taking money out of Australia and Australian companies.
“81% of respondents said they will change their asset allocation if they lose their franking tax refund, with 46% of these allocating in favour of global shares – taking their money out of the local equities market,” Dr. Hamson said.
Plato has warned that the proposed policy may impact more retirees and superannuation funds than anticipated, and according to Dr Hamson, there are viable alternatives to Labor’s proposal.
“70% of respondents think the $1.6 million cap on super is sufficient to fix the problem of there being a few extremely large franking credit refunds, with 61% selecting this as the best alternative to the proposed policy,” he said.
“Given a choice between the proposed policy, having a cap on refunds of $10,000 or $15,000 a person; or a limit on super (in addition to the $1.6m pension cap) – the super limit wins hands down at 61%,” Dr Hamson said.
The survey results will form part of Plato’s submission to the Standing Committee on Economics’ “Inquiry into the implications of removing refundable franking credits”.
The Plato survey received over 1400 responses, 76% of these individual investors, 69% retirees and 15% expecting to retire within five years. Almost two-thirds of respondents (64%) invest through self-managed super funds, while 22% invest directly.
