Last week the Australian Securities Investment Commission (ASIC) issued a statement bringing some clarity and relief to pensioners who invest their money in so-called bank deeming accounts.
In an attempt to ensure that people receiving an Australian Government pension are not being misled by advertising, promoting the interest rates they will be paid on certain types of savings accounts, ASIC has worked with the banks to revise the rules.
ASIC claims that it had discovered that some banks and ‘mutual Authorised Deposit-taking Institutions’ (ADIs) were employing the term ‘deeming account’ to promote a basic savings account to pension recipients. These accounts were then marketed as having a connection with the Government’s ‘deeming rules’, which form part of the Government’s social security income test. ASIC judged that this connection or linkage could be potentially misleading to consumers, implying that the interest rates were exactly the same as the Government deeming rates.
A three point plan has been created to guide the banking industry, in particular the Australian Banking Association (ABA), including requirements that:
- the word ‘deeming’ is not used in a savings account name where that might mislead consumers about the interest rates being offered
- features of these accounts are not described as being ‘comparable to’, ‘compatible with’, ‘guided by’, ‘reflective of’ the Commonwealth Government deeming rates where this is not the case, and
- where ‘banded’ interest rates are offered, this is clearly disclosed, and information about different bands and the applicable rate is made easily accessible to consumers.
Hot on the heels of ASIC’s announcement came a press release from the ABA claiming the ‘three point plan’ for industry best practice as the ABA’s plan.
What is deeming and what are the current rates?
Being cynical is rarely attractive – skeptical is fine, but cynical sounds world-weary and suspicious. But when the Australian Banking Association tells us that it has created a three-point plan to benefit seniors, I can’t help but wonder if it was the coercion of the regulator which forced it to the brink – or if the banks are getting sentimental about seniors as Christmas draws near.
Deeming rates are contentious at the best of times, as they are a rate level struck by the Minister for Social Services in an attempt to find a useful benchmark against which to assess earnings from financial investments. But to name commercial bank accounts ‘deeming accounts’, regardless of whether they pay the official deeming rate or not, smacks of opportunism. Basically, it would seem that the banks have been found guilty of false advertising. A deeming account may or may not pay interest at the same rate as the official deeming rate. So it is misleading to call it a deeming account and this practice must be dropped as soon as possible, along with advertising that tells Age Pension recipients the rates are ‘comparable to’, ‘compatible with’ ‘guided by’ or ‘reflective of’ the actual deeming rate, if they are not. At one level it is misleading advertising – in old-fashioned parlance, it’s simply lying.
Living on an Age Pension is a tough gig when you consider that the income level is at least $2000 below the poverty line. Being misled about the interest you will be paid only makes matters worse. When the institution misleading the pensioner is earning not millions, but billions of dollars in profit, it’s a downright scandal. So for the ABA to position itself as the ‘good guys’ in working collaboratively with the regulator to create a three point plan and ‘voluntarily agree’ to set things right, it is beyond belief. Banks do not have their customers’ interests at heart; their shareholders are their primary concern. And board salaries and perks seem to come a close second. Righting this wrong has occurred because ASIC finally showed some muscle over misleading advertising – not because the banks saw a need to clean up their act.
What do you think? Have the so-called deeming accounts really been confusing for pensioners and seniors?