One of my biggest investments has been my own education

Monash University banking professor Deborah Ralston is chairwoman of the new Alliance for a Fairer Retirement System.

Deborah Ralston: ‘We as individuals need to be responsible for the choices we make.’ Picture: Stuart McEvoy

The Alliance for a Fairer Retirement System has come to attention as a voice against the ALP’s franking plan. What’s the key issue there?

The ALP’s policy has been a catalyst in bringing the alliance ­together as it will affect a large group of Australians who have traditionally had little political influence: in particular, self-funded retirees, retired small business owners and SMSFs who have made their long-term retirement plans on tax policy in place for almost two decades. (The ALP plans to scrap cash rebates on franking credits for retirees.)

While wealthier retirees will reallocate their portfolios, the biggest impact will be felt by those on modest incomes. About 70 per cent of taxpayers over the age of 75 receive franking credits, with an average value of $6347. Many of these retirees will see a 30 per cent drop in income under the ALP policy, leading to more ­people on the Age Pension.

Is it not very unlikely from a political perspective that Bill Shorten and the ALP would now reverse this policy.

Given the number of exemptions that were hastily made following the announcement, that is for age pensioners, the Future Fund and charitable trusts, it does not ­appear to have been a well-thought out policy. It is also pretty clear from the modelling we have seen that the reported revenue generated is greatly over-estimated. While behavioural responses to this type of change are difficult to estimate, we can already see a significant shift out of Australian equities across SMSF platforms.

Was the Alliance formed ­expressly to deal with the franking credit debate? What else do you have on the agenda?

Yes it was, but we have more on the agenda. We want more consistent, stable policy across the three pillars of the retirement system: that is Age Pension, super and private savings. (The alliance includes stakeholders in the ­retirement system, including the Australian Shareholders Association, the SMSF Association and the Stockbrokers and Financial Advisers Association.)

What would you advise for people shocked at the revelations on super in the royal commission?

Some of the revelations have been very disappointing, but it does bring home that fact that we as ­individuals need to be responsible for the choices we make with our super. There are a few things that individuals can do, such as consolidating accounts to minimise fees, checking fees being charged, and checking whether the insurance coverage is appropriate.

Where SMSFs are concerned, make sure you are on top of your responsibilities as a trustee, and that you have an appropriate ­adviser. The SMSF Association website has a trustee knowledge centre and a search capability for specialist SMSF advisers.

Do you think borrowing in SMSFs should be allowed?

Yes, there is a place for borrowing within a diversified SMSF, and around 6 per cent of funds have taken advantage of this aspect. There are criteria concerning ­assets that can be borrowed against. Such investments must fulfil the sole-purpose test and we would argue should stand alone without a personal guarantee.

We do have some real concerns about what the Australian Securities & Investments Commission has termed one-stop property shops, where SMSFs have been established to buy leveraged property.

Do you think the basic value proposal of an SMSF has been diluted with the recent cutbacks and various clampdowns from the government?

People who establish SMSFs do so because they want to manage their own retirement savings. SMSFs trustees are usually very engaged with their super, and appreciate aspects such as the ability to plan their retirement as a family, to incorporate a border asset allocation and take tighter management of tax liabilities. Contrary to some recent statements, net returns on SMSFs are comparable to those of institutional funds.

For all of those reasons I would expect the sector to continue to grow, although with the increased complexity of regulation, we might see some reduction in the rate of growth.

The industry funds have looked an awful lot better than mainstream retail funds in the royal commission. What do we take from that?

Yes, on the whole, industry funds have performed well and have not been at the centre of many issues raised in the royal commission.

In a digital age, funds should be informing, and guiding members towards a confident retirement, which, after all, is the whole objective of the system.

By this time next year what specific objectives do you hope this alliance will have achieved outside the franking debate?

I expect we will have been through an election, and that members of the Alliance have been affirmed in the value of working together. With another budget and an election between now and then, there are sure to be other issues to address.

How do you invest yourself — and what has been your best ­investment?

Over the years I have been ­engaged in a number of innovation hubs and business incubators, and invested in a few innovative young companies, including some in the fintech area. Hopefully, one of these will turn out to be my best investment.

I must admit one of my biggest investments has been my own education: I am a serial learner and researcher. I like to follow new business models and developments. In super, there are some great new investment platforms and regtech (regulatory technology) solutions, and with my role on the RBA payments stability board, I am interested in developments in distributed ledger technologies and digital currencies.