Go To Centrelink: Swan's Advice On Frozen Funds

The Age
24 October 2008
Ruth Williams and Peter Martin

PRESSURE on the Federal Government over its bank deposit guarantee has escalated after three big financial institutions hit with a spate of withdrawals by customers last night froze their accounts.

Tens of thousands of Australians, many of them retirees, will be unable to get immediate access to their capital after AXA Asia Pacific, Perpetual Investment Management and Australian Unity suspended withdrawals from their funds.

Treasurer Wayne Swan responded last night by advising people adversely affected to go to Centrelink to see if they were eligible for income support.

But the Government did not appear to have an immediate answer to the cascading problem, and Mr Swan's comments were seized on by the Coalition, which accused him of insensitivity and incompetence.

AXA, Perpetual and Australian Unity acted last night after being overwhelmed by people trying to withdraw money - mainly from mortgage funds - and transfer it into banks after the Government's decision to guarantee bank deposits.

It means that four of the nation's five biggest mortgage fund managers - AXA, Perpetual, Australian Unity and Challenger - have now suspended or put restrictions on withdrawals from 13 funds worth billions of dollars.

Industry sources said people with money in the funds had an average of about $40,000 tied up. As many as 180,000 people may be affected.

The funds are favoured by older, retired people because they provide a steady income stream. While there is no apparent threat to people's savings, the freeze means that those wanting access to any more than the regular income payments might be unable to do so for some time.

Senior Perpetual executive Richard Brandweiner said that from last night, the company would allow only quarterly redemptions by investors, with these based on the level of funds available at the time.

He blamed the situation on "a sudden spike in redemptions" after the Government flagged its bank deposit guarantee and "subsequent actions by other parties".

A spokeswoman for AXA said withdrawals by investors had been running at about 20 times the daily average before the company acted last night.

The developments will increase pressure on the Government to get its planned fee on big bank deposits - aimed at curbing the exodus out of investments that don't have a government guarantee and realigning incentives in the market - in place quickly.

Last night the Government offered no immediate remedy to the mortgage funds problems, and Mr Swan remained adamant that a guarantee would not be extended to these types of investments. "These are not deposits in a bank, we are dealing with market-linked investments," he said.

"I say to the people who are adversely affected by some of these decisions that have been taken in these managed investment funds, do fully investigate your eligibility for income support through Centrelink."

He said Perpetual managing director David Deverall had told him the bank deposit guarantee was not solely to blame for the problems. "He said to me that he was very supportive of the bank guarantee," Mr Swan said.

Shadow treasurer Julie Bishop said: "This is just not good enough. The Government's actions are affecting people's livelihoods. It has caused such confusion, not only in the markets but in the lives of pensioners, self-funded retirees and small business."

Opposition Leader Malcolm Turnbull said Mr Swan's "incompetence" was matched by his "cold indifference".

"Confronted with the human consequences of his mismanagement and incompetence, the best he can do is tell people whose savings have been frozen to show up at Centrelink," he said.

Earlier, Mr Swan held open the possibility that millionaires would be able to opt out of the proposed tax on big bank deposits.

After telling Parliament on Tuesday that the fee to be charged on accounts over $1 million would "be paid by all depositors in the deposit-taking institutions", he said yesterday he was considering allowing big depositors to opt out.

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