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Emergency Funds Unfrozen for Retirees


By Samantha Maiden and David Uren, The Australian


October 30, 2008




Retirees will be able to tap money in frozen mortgage funds for emergencies, under proposals being finalised by regulators and the industry.

Wayne Swan confirmed yesterday the Government was examining several suggestions from the managed investment industry to assist investors, apart from the offer of extra funding to help institutions apply for banking licences. 

The Australian Securities and Investments Commission and Treasury are working on a plan that would allow retirees to access their savings in emergency cases, such as paying a nursing-home bond, settling a house purchase or for medical purposes. 

National Seniors Australia chief executive Michael O'Neill stressed that any hardship provisions to allow retirees to access funds would be in special cases only. 

"It's about giving people some comfort that if they do have a serious issue they can access these funds," Mr O'Neill said. "Issues might include an urgent medical issue where people are facing costs for hospitalisation, aged care bonds or an emergency in the family." 

Under the corporations law, funds are prohibited from giving preferential treatment to any group of investors, regardless of hardship. However ASIC can grant exemptions. The corporate regulator is considering the model used for superannuation, but this is very strict, requiring people to have been on welfare for at least six months. 

The Government is bracing for the possibility that the economic downturn may increase demand for emergency assistance. 

US bank JPMorgan said yesterday it expected Australia to tip into recession before the end of the year, with the economy continuing to contract into next year. The bank expects the world economy to contract by 1per cent in the December quarter and by a similar amount in the first three months of next year. JPMorgan chief economist Stephen Walters said consumers were worried about the economy, and would cut spending even though the Government's cash payments begin in December. 

The share market had another roller-coaster ride yesterday, finishing ahead by 1.3 per cent after being up by 5 per cent. 

The Opposition increased its attack on the Government's management of the bank guarantees. Malcolm Turnbull described the hundreds of thousands of investors with funds locked in mortgage funds as "victims of government policy". 

"A policy decision, which no doubt was made with the best of intentions, has turned out to be a significant blunder," the Opposition Leader said. 

The International Monetary Fund has warned that government banking guarantees are unlikely to stop international funding for banks from drying up. 

The Government's decision three weeks ago to guarantee the banks was forced by other nations offering such a guarantee. The RBA and the Australian Prudential Regulation Authority believed local banks could be shut out of international markets. 

New IMF research shows the blanket guarantee of banks is likely to stabilise the domestic system and reassure local depositors, but not foreign lenders. 

The IMF studied 42 banking crises, of which 14 included banking guarantees. It found the offer of a guarantee greatly reduced the need for the central bank to provide liquidity support. 

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