Challenger on the canvas in DSS fight

IT’S all gone surprisingly quiet in the stoush between the Department of Social Services and Challenger over changes to the way the government assesses the company’s hottest new product, Care Annuity.

Last week the DSS basically spiked the annuity by saying that because people can get their money back (well, their estates can, if they die within 10 years) their income should be means-tested on a more stringent basis, ie, no more Mr Nice Guy.

That’s caused a fair bit of vapour inhalation at Challenger, which prides itself on being an innovator, but it hasn’t put its head back above the parapet yet beyond a protest note on November 28, the day it all started. The original product disclosure statement made the reimbursement issue pretty clear, stating: “If you die within the first 10 years of your annuity, we will pay an amount equal to 100 per cent of your initial capital investment,’’ so there may be more to this than meets the eye.

It’s likely that Challenger doesn’t want to get into a public spat with the government, but at the very least wants to work out what this means to the existing annuity holders.

A spokesman for the DSS said that “currently the product is assessed on the basis that investors would not be expected to get any of their capital back as a lump sum’’, which is a prize example of cross-purposes.

They added that “existing holders of the Care Annuity will not have debts raised against them”. “They will only have the revised income test assessment applied going forward from the date of reassessment,’’ which will be in the new year.

“The Department intends to work with Challenger to ensure affected investors are informed of what this may mean for them and their financial arrangements.’’ Which doesn’t sound a lot of fun for those imminent nonagenarians and their anxious descendants.

Founder’s new role

TALKING of Challenger, it’s now public that the company’s original founder Bill Ireland is coming back as an executive of backdoor listing Voyager Global as a consultant, but not a director.

It’s a Perth-based outfit looking to raise $7 million. Voyager’s model is all about getting Australian retail investors into a range of individual funds managed by offshore-based funds managers.

Given that for all his corporate setbacks and recently extinguished personal bankruptcy, Ireland is considered one of the best theoretical investment brains in this country, this new structure might actually pay off.

Medcraft rams it home

ASIC chairman Greg Medcraft has now made approximately the same speech three times in the last two weeks, explaining how white-collar bad guys should basically run up the white flag and come out with their hands up, even though penalties ought to be higher.

“Australia needs penalties that will scare the pants off people,’’ he railed yesterday at the National Press Club.

The ASIC chairman has been saying that nearly 18 per cent of his enforcement staff (well, 10 of 60) were working on the investigation of suspected manipulation of Australia’s key benchmark interest rate, the Bank Bill Swap Rate.

That’s a contrast with the day before Christmas Eve last year, when no one was paying much attention, AND UBS paid a voluntary $1m to ASIC to settle an investigation into the very same affair. That’s the sort of money UBS might find trapped down the couch when they are spring cleaning.

No doubt UBS is pure as the driven snow now, and it did fess up first, but let’s hope Medcraft’s clarion calls are a harbinger of tougher legal and financial action to sort out which bankers rigged the most important interest rate benchmark of the lot, on which all swap deals are based, and when.

If a court can’t work out the total value of the benefits obtained by rigging the market, then the authorities can levy a fine representing “10 per cent of the body corporate’s annual turnover during the 12 month-period finishing at the end of the month in which the body corporate committed, or began committing, the offence”. That is a serious penalty, and it’s on the books already.