Retirees and super savings would be hit hardest by changes to dividend imputation: ASFA

Dividend imputation has a significant positive impact on retirement incomes and abolishing it would reduce the annual income of the average retiree by $4,000 according to research released by the Association of Superannuation Funds of Australia (ASFA) today.

The research shows that the abolition of either dividend imputation or the current system of refundable franking credits would have the biggest negative impact on retirees, superannuation fund members and low to middle income earners, who would lose the current refund benefits on their zero or low tax rates.

“Removing or changing dividend imputation may seem like a quick revenue fix for the government now, but it will have negative long-term effects on Australians’ retirement savings,” said Pauline Vamos, CEO of ASFA.

“Initiatives like franking credits help to incentivise Australians to put money away for retirement as early and as often as possible. If we remove this benefit, it will have the most negative impact on retirees and low to middle income Australians who will see the tax rates on their superannuation earnings raised from 0 and 15 per cent respectively to 30 per cent across the board.”

“Currently, dividend imputation over both the accumulation and retirement stages leads to an approximate 13 per cent increase in retirement income streams. For a worker on an average income this equates to $4,000 more in retirement per annum. Even with the benefit of dividend imputation, only 35 per cent of Australians are retiring with enough superannuation to live a comfortable lifestyle—we clearly need to be helping Australians to bolster these savings instead.”

A decrease in retirement income streams would also have a long-term negative effect for Australian taxpayers, who would bear around half of the cost through increased public pension entitlement.

The report also indicates that a complete removal of dividend imputation may lessen the attractiveness of, and thus reduce investment in, domestic equities. A return to double-taxation of company income could also create an investor bias in favour of debt financing, rather than equity investment.

“It is imperative that we take a long-term view when considering tax reform and adequately cater for our growing retiree population,” concluded Ms. Vamos.

ASFA’s report on dividend imputation is available here.

About ASFA

ASFA is the peak policy, research and advocacy body for Australia’s superannuation industry. It is a not-for-profit, sector-neutral, and non-party political national organisation, which aims to advance effective retirement outcomes for members of funds through research, advocacy and the development of policy and industry best practice.