Government demands ASIC probe into ISA early access modelling

30 Apr Government demands ASIC probe into ISA early access modelling

Michael Roddan – Australian Financial Review – Thursday 30 April

Liberal MPs have piled pressure on the corporate watchdog to investigate Industry Super Australia over Treasury concerns it exaggerated the impact of withdrawing savings under the government’s early superannuation access scheme.

Senator James Paterson, who chairs the parliamentary committee inquiry overseeing the Australian Securities and Investments Commission, wrote to the regulator’s chairman, James Shipton, yesterday to ask whether it was investigating ISA – and if it wasn’t, “why not?”

It came as Liberal MP Tim Wilson, who chairs the House of Representatives economics committee, addressed a series of questions to ISA chief executive Bernie Dean relating to the lobby group’s warning that accessing savings should be a “last resort”.

Treasury on Tuesday demanded the ISA, which represents 15 union-andemployer-backed industry funds with $412 billion under management, explain why its estimates of future losses in retirement balances as a consequence of accessing savings were “significantly higher” than those provided by ASIC’s Money Smart calculator.

Treasury head of retirement income policy Robert Jeremenko yesterday wrote to ISA explaining that he had sought to correct the public record after wrongly claiming before a parliamentary committee on Tuesday that the lobby group had used “nominal”, rather than “real”, figures to overstate the impact drawing down on super savings would have on future retirement balances.

Although ISA uses an inflation deflator to adjust its future forecasts, its projections are still far higher than those provided by ASIC, the Grattan Institute and the Superannuation Consumers’ Centre. Treasury has dug in over the concerns with ISA’s modelling and has demanded an explanation.

Mr Wilson has asked Mr Dean to explain “all assumptions” for ISA’s calculations, why the group has chosen to apply a different discount rate to ASIC, and why it uses higher assumptions for future investment returns.

While ISA uses a 2.5 per cent inflation rate to discount future values, ASIC uses a more conservative 4 per cent deflator. ASIC also uses a lower implied 6.2 per cent investment return, compared with ISA’s 7 per cent annual return.

Under the government’s controversial hardship scheme, people made redundant or who have had their hours reduced, and sole traders who have experienced a drop in turnover of 20 per cent or more, can apply to access $10,000 from their super this financial year, plus another $10,000 next year.

ASIC’s Money Smart website estimates a 30-year-old worker would be $43,032 worse off at retirement if they unlocked $20,000 worth of savings, whereas ISA’s calculations found the same worker would lose $97,214.

Super Consumers Australia, part of advocacy group CHOICE, found that, for a 30-year-old, the impact of withdrawing $20,000 would be $49,823 by retirement age.

Both Mr Dean and ASIC have been given a week to respond to the questions on notice.

Opposition financial services spokesman Stephen Jones said there was a “strong public interest” in properly analysing the cost the early drawdown scheme would have on individuals. “I’d be delighted for there to be a thorough investigation into the costs and modelling of this policy,” he said.

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