Disclaimer: What you're about to read is of a general nature and doesn't take into account your personal financial situation, needs or objectives. We recommend you seek financial advice before making any decisions about your super and consider the relevant UniSuper PDS and TMD.
Lyndon: You're listening toSuper Informed Radio, the podcast that unpacks the world of superannuation, finance and life's money matters. I'm Lyndon and joining me is my co-host, my new co-host, in fact, Tania. Tania, a very warm welcome to Super Informed Radio
Tania: Thank you, Lyndon. Hi, listeners.
Lyndon: Well, it was the election result that, it might be fair to say, not too many people expected, Tania—the re-election of the Morrison Coalition government.
Tania: Yes, quite a surprise there, Lyndon. Did you put any money on it?
Lyndon: I didn't. Actually, Tania, I'm not what you would call the betting type. What about yourself?
Tania: No, I didn't. But I am betting that some of our listeners out there probably do have a few questions around the result of the election and what it might mean for super. So what I thought we'd do is catch up with one of our treasured regular Super Informed Radio guests, UniSuper's Public Policy Manager, Benedict Davies. Lyndon, you caught up with Benedict and talked through what the election result means and what the effect will be on our super.
Lyndon: I did, actually. And as usual, Benedict had a number of great insights that I'm sure our listeners will appreciate.
Tania: Sounds great. Let's take a listen.
Lyndon: Well, Benedict Davies, welcome back to Super Informed Radio. You're almost royalty on this podcast, you're one of our most frequent guests.
Benedict: And that makes me royalty? Well, that's great. Thank you, Lyndon.
Lyndon: I guess I'd like to start by just getting your thoughts on the size of the election victory, which often goes to questions of how strong a government's mandate may or may not be. What's your take on that?
Benedict: It's a very good question. When it goes to mandate, it goes to how the election was fought, the types of issues, how. A majority is important in establishing a mandate, but there's a lot more to it than that. It looks like 75, 76, 77 seats for the government, which might be a majority of one or two, if that were the case.
Lyndon: And the Senate, as we all know, was being talked about as being a bit of a potential minefield and all of the minor parties and everything kind of coming in and disrupting whoever was going to win the election. What's your take on how that whole landscape's panning out?
Benedict: It's always very complex, as you say. And for those who voted below the line on the Senate ballot paper on the weekend, will see how complex it can be. Some early numbers suggest the Government doesn't look likely to have command of the Senate. It really looks like the type of Senate we've had over the past 10 or so years.
Lyndon: All right, let's dive into some super-related questions then, Benedict. It's probably worth re-pointing out that we're recording this podcast on Monday 20 May, so the Monday just after election has happened. One of the biggest super-related issues, Benedict, we kept hearing about during the election campaign, was the whole dividend franking credits thing.
Benedict: Got a lot of commentary.
Lyndon: Could you just recap this issue for listeners and were UniSuper members likely to have needed to worry about that anyway?
Benedict: The first bit, I actually had to try to explain this to my godson on Saturday night, who's 12 and he's interested in shares and he said, "What's franking credits?"
Benedict: So I thought, "If you can take this back to school on Monday, and discuss this with your chums, it will be very interesting."
Lyndon: Let's hear it.
Benedict: I don't think he quite got the hang of it, but franking credits are the corporate tax or the tax companies pay that are associated with a dividend that's been distributed to shareholders. That doesn't sound sensible or logical, does it, or anything easy for a 12 year old boy to follow.
The franking credits are generally used to offset a person's tax liability. So if a person pays tax at a much higher rate, they have a 30-cent tax credit which they can use to potentially reduce their tax. What has happened for about the last 17 years though is those with zero tax, in certain instances, can get a refund of the 30 cents in dollar corporate tax. Now the Labor Party policy was to stop those refunds. It wasn't that you wouldn't be able to use the franking credits, you just wouldn't receive a refund of what's known as excess franking credits or a cash payment at the end of the year from the tax office.
Lyndon: I see.
Benedict: So from UniSuper's perspective, we have many, many sources of income beyond shares. We also have contributions from members, which are taxable income of the fund. So we didn't see a situation where we wouldn't be able to use the franking credits. So yes, we have franking credits from our share investments. We use them and under the proposed policy, we would continue to be able to use them. We never imagine a situation where we would have so many franking credits and so little taxable income that the Government will be giving us essentially a tax refund at the end of the year. Whereas, if you were in self-managed super fund, for example, with one member in the pension phase, you may well have received franking credits in the past.
Lyndon: It's a bit of a moot point, really, I mean, obviously, in that this is not a policy of the Morrison Government, but I think it's helpful to understand what that meant.
Benedict: Yes. So yeah, could a 12-year-old child understand that? Probably not. There's been a lot of commentary on this on the press. It is still a very confusing issue. But in a sense, it's a tax credit which people use to reduce their other tax liabilities. The policy would have stopped just a complete refund of those excess credits.
Benedict: It is still the Labor Party's policy. For what it's worth, Steve Bracks, the former Premier of Victoria, was on the couch on the ABC this morning saying, "It may be time to review that policy and maybe to get rid of it." So I guess we just need to see what happens.
Lyndon: Yeah right. Another thing, the First Home Super Saver Scheme, which was introduced in the Government's 2017-18 Federal Budget, basically allows people to park some savings for their first home into their super and enjoy the benefits like investment returns and tax savings and so on. This was another thing that was potentially on the opposition chopping block before the election. I assume that's ‘play on’ now and that's going to remain?
Benedict: Well, it's the Government's policy, so I don't see any reason why they would change their own policy. We had questions from members about the franking credits and this particular policy, questions about the uncertainty, ‘what would it mean for me?’ Fortunately, for those who have taken advantage of the scheme, I think it's ‘play on’ as you say. If you were to remove a scheme like this, it would be a challenging thing because some people have made additional contributions to superannuation with an expectation they could be withdrawn.
That said, it's now a moot point, it seems that this policy for the next three years won’t be pursued. Whether or not the Labor Party continues to stick to this policy, I guess, is yet to be seen.
Lyndon: So for a recap of the things announced in this year's Federal Budget, listeners can head to unisuper.com.au/podcasts and listen to our interview with you, Benedict, where we covered all of those particular things off. Did the Government have any extra super proposals as part of this election campaign?
Benedict: I didn't see any. I think what they took to the early Budget in April were the main superannuation announcements, and I do encourage listeners to go back and listen to that podcast. We also did a webcast. What I noted from the webcast and the questions from members was that they were very interested in the opposition's policies and didn't really ask any questions about the Government's policy. So it might now be a chance, I mean, I assumed members had read the polls and thought a Labor government was more likely than a Coalition government. So, it may now well be a chance for listeners and for us all to go back and have a close look at the April Budget.
Yeah, so there were a small number of superannuation policy announcements in the April Budget, mostly around relaxing the rules for contributing to super in the year in which a person retires—65, 66, those sorts of things. And another measure to do with spouse contributions but they were small changes to make it easier for those just about to retire, so they weren't large changes. And I guess the Government will be keen to implement those changes but they would have a date of effect from 1 July 2020, so there seems to have plenty of time for the Government to go and legislate those measures.
Lyndon: So I guess one final question, Benedict, to kind of wrap up our discussion, our post-election discussion—what's next for super? Now that we pretty much know who the government is going to be, what next?
Benedict: I think it would be a continuation of some unfinished business that the Government has tried to pursue over the last two parliaments. There's still an objective of superannuation bill from quite a few years ago that needs to be legislated which would define what the purpose of superannuation is. That is yet to be done. It's important, in terms of appraising the future direction of superannuation, what its purpose is. Is it to supplement the age pension? Is it to substitute for the age pension? Those big questions are still somewhat unresolved.
The more immediate issues the Government also has to deal with is, we had the Royal Commission and the Government said it would implement the recommendations of the Royal Commission, so that in itself is quite a large piece of work which will take some years, in all likelihood—with quite substantial industry consultation, legislative development, negotiations for the Parliament to pass laws.
Another thing that could potentially be a significant challenge for the Government is to implement all of the recommendations of the Productivity Commission's report into superannuation. Now, so far, neither the Government nor the opposition has really formally responded to the Productivity Commission's report, which came out in January this year. So I would be expecting at least some comment soon on superannuation, the future direction, where and how the Government might respond to the Productivity Commission report itself.
There is one more immediate issue that the Government would, in all likelihood, pursue. Some listeners will be aware there are some changes currently afoot, in fact, with regards to maintaining your insurance in superannuation. The Government has a policy called Protecting Your Superannuation which covers a few things—fees, insurance and a process of consolidating small accounts to the tax office.
Now, when the Government legislated that in February this year, they negotiated a deal with the Senate to remove a component of it, and it's likely that that component will come back. Now, that component is about how a person gets insurance upon joining a superannuation fund. So it's about opting in to insurance, potentially, which might come in from October. So it won't affect those currently in funds or those currently with insurance, but it may well affect how superannuation funds are able to offer insurance to new members in October, presuming the government gets its way and is able to pass this piece of legislation called Putting Members' Interests First.
Lyndon: So still a little bit of unfinished business for super on the horizon.
Lyndon: Benedict Davies, thank you so much once again for joining us on Super Informed Radio.
Benedict: Thank you.
Tania: That brings us to the end of another episode of Super Informed Radio. Some really great insights from Benedict on the election result and what it means for our super, Lyndon.
Lyndon: Absolutely, Tania—indeed. And as always, you can catch up on past episodes of Super Informed Radio at unisuper.com.au/podcasts, or by subscribing through any good podcast app. We'll see you next time.
Tania: Bye for now.