Planner warns on franking credits policy fallout

The Federal Opposition’s proposed changes to the franking credits regime risks placing greater pressure on the Age Pension as retirees take on greater investment risk to achieve higher income and face the prospect of capital loss, according to South Australian financial advice principal, Mark Draper.

In a submission to the House of Representatives Standing Committee on Economics inquiry into the proposed ALP move, Draper said the reality of the proposal was that it would most severely adversely impact “middle class” retirees.

“The reality is that the high-income earners and high net worth individuals are unlikely to be materially impacted by this proposal,” he said. “Those who will pay the largest proportional price seem to be mainly ‘middle class’ retirees, while those at the higher and lower end are likely to be unaffected.”

Draper argued that the proposal was highly likely to encourage retirees to spend their capital and become more dependent upon the welfare system and that, overall, the proposal provided a significant disincentive to save for the majority of Australians.

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“This proposal changes the goal posts retrospectively to middle class retirees who do not have the option to build further capital to compensate for such material changes to their income,” his submission said.

“Retirees in our client base, already dealing with the changes to Asset Test for Age Pension effective 1st January 2017, are extremely anxious about further changes to their retirement income which materially impact their level of disposable income.”

“This is taking place at a time of record low interest rates and low prospective rates of return in financial markets,” Draper’s submission said.