Feds order an examination of Australia’s superannuation system

Many people in Australia’s superannuation industry are worried about the Federal government’s decision to order a thorough examination the examination of the industry’s performance..

Although they have agreed to co-operate with it, industry executives are still unsettled, in particular, by the timing of  the government’s move.

The share market crash, after the collapse of Lehman Brothers last September, hit Australia’s superannuation funds very hard.

The industry research organisation, Superratings reported earlier this month that the value of assets held by the super funds plunged by more than 18 per cent in the first eight months of this financial year.

And an 18 per cent slice, of assets that are still worth more than $1 trilli0n, represents  very big losses indeed, in raw dollar terms.

The industry knows that the public is very well aware of these losses – and is very angry about them.

It  can point out that super fund members are still well ahead, on sums done over the last seven financial years.

A very impressive $651.3 billion ahead, in fact.

But no-one is listening to that kind of talk, right now.

So the industry’s fears, that this examination could turn into a witch hunt is understandable.

Australia’s banking industry has not been asked to submit itself to a similar process.

The Federal Superannuation Minister Nick Sherry, though, describes the proposed examination as “timely.”

“After nearly 20 years of compulsory superannuation and the development of numerous new features the Government, with the support of the industry, has agreed that it is timely and appropriate that an examination take place,” he said.

Although the industry did, indeed, agree to the examination, no-one in the industry has yet been heard shouting Hallelujajh at the news.

Stronger protection for home buyers in new consumer credit laws

Australia’s banks have recognised that wholesale property repossessions in a recession are bad business.

That is implicit in their acceptance of new safeguards, that the Federal government has just announced.

These will enable home buyers, with mortgages of up to $500,000, to seek protection against foreclosure, if they lose their jobs and cannot meet their repayments. This means that thousands of Australian families, will have a better chance of keeping their homes,  while they get their finances back into order.

The present threshold, for such protection, is $312,400.

“This means that if home buyers find themselves in financial hardship, they will be able to request help,” Senator Nick Sherry said.

Borrowers seeking this protection would have to contact their bank first, to get help.  If the bank  refuses to help,  the borrowers would be able to appeal to the Federal government’s Financial Ombudsman service.

Senator Sherry, who is Minister for Superanniation and Corporate Law announced the new threshold, in a statement he issued yesterday.

It is part of a package of sweeping changes to Australia’s credit laws, that Senator Sherry announced yesterday.

The announcement follows six months of intense talks with Australia’s banks, State governments and consumer representatives.

The biggest influence on the changes, though, has clearly been the  bitter experiences which followed years of reckless lending in the  United States.  These have included the collapse of more than 50 US banks since the onset of the global credit crisis last September.

Senator Sherry said the new laws, which are expected to come into force in November, would give Australia simple, standard, national regulation of consumer credit for the first time.

“It will save business money and will protect Australian consumers,” Senator Sherry said.

All consumer credit providers will have to be licenced under the new regime.

Senator Sherry said, too, that the new laws would provide new, easy access to low cost dispute resolution procedures.

Investment loans would also be covered  by consumer protection for the first time.

The new system will also include what Senator Sherry called “responsible lending laws.”

He said these would make it illegal for a lender to extend credit that is unsuitable for a particular borrower.

“Breaches oif responsible lending obligations will attract sanctions ranging from fines through to civil and criminal penalties,” Senator Sherry said.

www.treasury.gov.au/consumercredit for details.

Big deficits loom:Tanner

As the Federal Treasurer, Wayne Swan, flies to Washington for more talks on the global economic crisis, Australians should steel themselves for big Federal deficits.

These will start with the Federal budget, which Mr Swan is to bring into Parliament on May 12.

His colleague, the Finance Minister, Lindsay Tanner, is frank about what needs to be done.

Mr Swan has already admitted that the crisis has put a “wrecking ball” through his budget calculations.

And the IMF revealed yesterday that it expects the global economic downturn to be even deeper and longer than it had previously forecast.

Mr Tanner was asked about these developments in a radio interview.  He was reminded, too, that government revenues now seem likely to collapse by even more than the $115 billion predicted in February.

His reply was blunt.

“It is pretty clear from these figures that we’ll see even bigger deficits as a result of that change,” Mr Tanner said.

But he refused to say how big the budget deficit might be.

Nor would he say when a recovery might start.

“It’s impossible to say how quickly we will be able to move into recovery,” Mr Tanner said.

“But we do have an extraordinary degree of economic stimulus moving through the system.”

He said these are flowing both from lower interest rates and the Federal government’s two stimulus packages.

Economic outlook bleak:IMF

The IMF is talking about a deepening global recession with severe consequences.

And Australia won’t escape.

It is expected to contract by 1.4 per cent this year, before growing by just 0.6 per cent next year.

But the Treasurer Wayne Swan says that is, at least, a better outcome than most developed countries can expect.

“This is a much milder contraction than expected in almost every other advanced economy,” he says.

Developed countries, combined, are expected to contract by 3.8 per cent this year.

In short, the world is facing its worst economic performance in post war years.

Mr Swan says Australia’s unemployment is now likely to be closer to 8 per cent, at the end of this year, than the 7 per cent he originally forecast.

“The IMF notes,” he says,” that the global economy is in a severe recessison.”

And it says that, in turn, has been inflicted by “a massive financial crisis” and “an acute lack of confidence.”

We knew all that, of course.

But it is still disturbing to hear forecasts like this made official.

Especially as the IMF’s latest forecasts are its fifth downgrading in just six months.

This situation will have severe consequences for us all.

And many of those will become apparent, when Mr Swan brings his latest budget into parliament on May 12.

His boss, Kevin Rudd, has already revealed that this will be yet another stimulatory document.

But that doesn’t exclude bad news.

Expect it.

Super moving back to the black

Has your likely superannuation pay-out picked up, now that there has been an unsteady recovery on world share markets?

The short answer to that question is “yes” – but not by as much as many experts had hoped.

Jeff Bresnahan, who keeps an eye on these trends, said the gains Australia’s superannuation funds have made on the share market in March have been offset by both a rising Australian dollar and a continuing re-evaluation of unlisted assets.

Bresnahan, who is the managing director of Super Ratings said Australia’s superannuation funds made a mid-level recovery of 2.24 per cent in March.

But he admitted that was “somewhat below expectations”  as world share markets chalked up gains of more than 8 per cent last month.

The month’s results, though, were still the best Australia’s superannuation funds have recorded for some time.

As fund  members are all too well aware, last September’s share market collapse hit the reserves of Australia’s super funds very hard.

Its impact is reflected very clearly in the latest Super Ratings figures,.

They show that the value of the assets held by Australia’s superannuation funds fell by no less than 17.35 per cent in the 12 months to the end of March.

And, despite the 2.24 per cent gain in March, the funds still suffered an overtall loss of 3.69 per cent, in the three months to the end of March.

As Australians still have more than $1 trillion in their superannuation funds, even those small percentages still represent very big losses, when counted in  dollars.

Still millions of Australian workers will be delighted to see these funds starting to make gains again, after such a black patch.

But fund members have learnt, the hard way, over recent months, that keeping an eye on their’s funds investment strategies is wise.

And the latest Super Ratings report confirms that.

It showed, for example, that share options with fully hedged exposures to the Australian dollar, returned gains of up to 10 per cent in March.

But those without currency management typically suffered losses of more than 2 per cent in the same time.

Crisis “still spreading” IMF

The effects of the global financial crisis are still spreading.

This is confirmed in the latest IMF global stability report, which was released overnight.

It says that more families and companies in both the developed and developing worlds are now feeling its effects,

The Treasurer, Wayne Swan, said the report makes “sobering” reading.

It comes just one day ahead of the IMF’s World Outlook report.

That is expected to show further downward revisions of global prospects.

Mr Swan said these are expected to include a projection that the world’s economy will shrink this year, for the first time in 60 years.

The latest IMF report says the world’s financial system remains under stress, despite many government efforts to repair it.

It urged governments throughout the world to quickly repair any troubled banks they may have.

That is not a problem in Australia.

Mr Swan said Australia’s four big banks are all rated among the world’s 11 strongest.

“However Australia is not immune from developments in international financial markets,” Mr Swan said.

“That is why the government has taken decisive steps to strengthen the resilience of Australia’s financial sector,”  the Treasurer added.

He said these had included guaranteeing the deposits and wholesale funding of Australia’s banks, building societies and credit unions.

More stimulus in next month’s budget:PM

Expect further economic stimulation in the budget that the Federal Treasurer, Wayne Swan, will bring into parliament on May 12.

We have that information on the word of a usually reliable source, the Prime Minister, Kevin Rudd.

The Prime Minister was unusually frank about that,when he met reporters in the southern Perth suburb of Spearwood yesterday.

“The truth is this,” he said.

“The global economic recession makes it inevitable that we will have a recession in Australia.”

And he said:”That means that wer’re going to have to make even stronger our economic stimulus strategy.”

The Prime Minister made it absolutely clear, as he said this, that he was speaking in the context of the budget that Mr Swan is already preparing.

Mr Rudd said bluntly, too, that Australia’s unemployment “will rise” as a result of  the global crisis.

He also kept up the government’s pressure on Australia’s banks, particularly those which have just raised the rates they charge on their loans.

Mr Rudd said bank customers should “vote with their feet” if they found their bank doing that.

Mr Swan had admitted, earlier in the day, that Australia’s growth is already “slowing dramatically.”

He has predicted, too,  that Australia’s unemployment rate will be above 7 per cent by the end of this year.

But that forecast is likely to be revised – upwards – in next month’s budget.

Reserve Bank Governor looks for the path out of recession

Glenn Steven’s realism goes well beyond his unexpected confirmation that Australia “too, is in recession.”

The Reserve Bank governor is surprisingly pragmatic also in his assessment of current prospects for an early end to the global economic crisis.

“The politics may be harder than the economics,” he warned in a speech he delivered in Adelaide  yesterday.

That was a very perceptive  comment.

The bank rescues, that have proved necessary in the United States and several other countries, but not Australia, have one common feature.

They give bank  shareholders major benefits at huge costs to taxpayers.

And Mr Stevens said it’s not surprising that ordinary people, including taxpayers, resent that.

“But it has to be done,” the Reserve Bank Governor added.

“Otherwise economies will suffer for longer.”

Fortunately Australia has not had to bail out any of its banks.  At least not so far.

It probably won’t  at any time in the forseeable future, either.

Mr Stevens said that is one of the major advantages Australia will have, when  the world starts out on the path to recovery.

“Australia should be able to articulate such a path more effectively than most,” Mr Stevens said.

He said, too, that Australia’s close ties with Asia should also help Australia find its way out of recession more readily than many other countries.

But why are you wasting time, reading this blog?

Do yourself a favour.  Close your office door.  Take your phone off the hook.  And read the full speech at www.rba.gov.au.

That will be the best half hour you will spend today,