Substantial impact on managed funds predicted from Labor policy

27 November 2018

Australian managed funds with high exposures to Australian equities stand to be substantially affected by the Federal Opposition’s policy proposal to remove refundable franking credits, according to the Financial Services Council (FSC).

In a submission filed with the House of Representatives Economics Committee, the FSC pointed to the value of franking credit refunds for managed funds outside of superannuation and stated that one data source had indicated that around 47 per cent of managed funds invested in Australian equity, or 33 per cent weighed by value.

It said that total ownership of shares by Australian managed funds was $170 billion.

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“About 19 per cent of managed funds had a very high exposure to shares (more than 85 per cent) – the value of these funds is $124 billion, or 10 per cent by value of all managed funds,” the FSC submission said. “These funds will be substantially affected by changes in franking credit refunds.”

It said that almost half a million Australians are estimated to invest in managed funds and receive refunds of franking credits.

Elsewhere in its submission the FSC revealed the results of a survey of large superannuation funds which it said revealed that the benefits of the franking credit refunds for some fund members was substantial.

It outlined the survey results as follows:

• There are about 66,000 retiree accounts in surveyed funds, if retirees received the benefit of franking credit refunds, their average benefit was $850 per year.

• There are 73,000 member accounts in surveyed funds where the average member balance is below $100,000. The average benefit of franking credit refunds across all members of these funds is 26 basis points (0.26 per cent, or $195 per member).

• There are 33,000 member accounts in funds where the average benefit of refunds to all members is more than 30 basis points (0.3 per cent). The average balance in these accounts is only $94,000.

• For a typical full-time worker, an increase in yearly super returns of 0.3 per cent over a 46-year working life would boost retirement savings by 6.6 per cent or $55,000.

• Across all surveyed funds, there were 331,000 member accounts and an average balance that is fairly low at about $198,000. This implies that many retiree members may be part pensioners as well as receiving the benefit of franking credit refunds.

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