Banks and super funds on notice over coronavirus responses

Wrong superannuation calculations and changes to redraw go under the microscope.

The issues have been related to impacts on retirement funds from the early release of super and the shrinkage of borrowing capabilities through redraw facilities.

Banks and wealth funds are being questioned as to whether responses and support measures to customers are sufficient during the coronavirus pandemic.

In a House economics committee led by Liberal MP Tim Wilson on Thursday, Industry Super Australia and industry fund-owned ME Bank were both scrutinised over separate issues relating to financial impacts on customers during the COVID-19 shutdown.

The issues have been related to impacts on retirement funds from the early release of super and the shrinkage of borrowing capabilities through redraw facilities.

Industry Super Australia (ISA) revealed its calculations of the long-term impact of the early release of superannuation scheme were originally different to that which it uses for the calculation of future balances at retirement, only standardising the numbers last week.

Mr Wilson, questioned the industry fund’s initial modelling of early release of superannuation, with the fund revealing its calculations had not been based on generic fund assumptions.

ISA’s initial modelling received public backlash, after it advertised members should not access the coronavirus early release of super scheme.

ISA released modelling that a $20,000 withdrawal through the scheme by a 30-year old would result in a long-term loss of $100,000 at retirement. Mr Wilson said the claims were much higher than the calculations made by government and the Grattan Institute.

Initial modelling

The industry fund told the committee its underlying assumptions regarding early release of super were changed last week on its website. It noted its initial assumptions were still in line with the Productivity Commission and ASIC standards.

ISA chief executive Bernie Dean said the scheme implemented by the government had up-ended how the superannuation industry operates and noted the fund supported the planned increase in superannuation guarantee payments, which are scheduled for next year.

“The super guarantee increase is going to be more important than ever before … to recover some of the savings that they [members] have lost in recent times,” Mr Dean said.

ISA deputy chief executive, Matthew Linden said its current economic assumptions used for the generic and early super release calculations are based on an investment return of 7.5 per cent, a consumer price index of 2 per cent and a real wages growth of 1 per cent.

Redraw account changes

Industry fund-owned ME Bank was also questioned over its recent redraw account move that automatically reduced borrowing capabilities on existing accounts.

It was revealed the bank’s home loan customers on average had their redraw facilities lowered by $17,000, following technical issues caused by its banking system upgrade.

ME Bank chief executive Jamie McPhee said affected redraw accounts on average were reduced by 20 per cent.

A technical structure issue within the bank’s new system upgrade caused an automatic contraction to redraw facilities, which would reduce when a customer lowered their respective home loan balance.

ME Bank last week made a public apology with regard to the redraw reductions, which sparked ire after it provided no warning to customers that their borrowing amounts had been impacted.

“Consequently ME [Bank] readjusted the redraw facility to ensure those customers could not inadvertently withdraw funds above the original repayment schedule,’ Mr McPhee said.

“We approached this with the right intention and the interest of our customers, but we got the timing and the communications wrong.”

Mr McPhee said the industry fund-owned bank had initially made the decision to lower customers redraw facilities in an attempt to stop customers from overcomitting to more debt.

The Australian previously reported that the Australian Prudential Regulatory Authority has been in close discussions with ME Bank, regarding teething issues of its new banking system technology.

It was also revealed the bank implemented a subcommittee to look at the redraw scheme in February, but a report was never handed to the board.

It is also understood the redraw scheme was not re-examined once economic conditions deteriorated due to the coronavirus pandemic.