Whenever we hear the words ‘financial scam’, there are a number of thoughts that immediately spring to mind. From mysterious Panama bank accounts to smooth-taking Ponzi salesmen, these images are synonymous with fraudsters and confidence tricksters throughout the ages.
However, if we were to discuss the biggest financial scam in Australian history, you may be surprised to note that there was not a smooth-talking shyster or complex investment structure in sight.
This scam has also been undertaken in plain sight of the Australian government and financial regulators, as millions of hard-working Aussies continue to have their savings pilfered.
But what exactly was this scam, and how did it come to pass? Let’s take a look:
Australia’s Biggest Financial Scam – How is it Impacting Savers?
The fraud in question revolves around Australia’s superannuation industry, which featured assets worth a cumulative total of $2.6 billion in the year ending March 2017. This represented a 6.8% increase year-on-year, while the growth in this market shows no sign of slowing down.
Superannuation in Australia refers to a series of arrangements and financial structures that have been put in place by the nation’s government, so that ordinary people can accumulate wealth and create an income stream ahead of their retirement.
It’s currently compulsory for employers to make superannuation contributions on behalf of their staff, covering three different types of insurance product including death cover, disability coverage and income protection (in the event that you lose your job).
Despite the good intentions behind superannuation and the support of government agencies, the royal commission has recently uncovered some serious discrepancies regarding the management of these funds. More specifically, trustee group Nulis is believed to have applied duplicate charges on the accounts of members who had died, reflecting the misconduct and structural issues that stalk the superannuation market.
This comes hot on the heels of an incident in July, when the National Australia Bank was forced to refund 305,000 superannuation customers more than $67 million. Following in-depth discussions between Nulis and the Australian Securities and Investments Commission (ASIC), it was revealed that customers had paid a financial planning fee that was not compulsory after not being given accurate advice.
The ongoing investigation will determine whether these instances occurred as a result of negligence or deliberate fraud, with four specific breach events currently under review. One of the primary areas of concern is the vague nature of the fees that are charged to accounts, with premiums as high as $2,000 often deducted straight out of retirement nest eggs without members even noticing.
This means that combined savings of millions are bleeding out of superannuation accounts in Australia, and this is something that cannot continue indefinitely.
How has this been Allowed to Happen?
The exact impact of these failings on savers have not yet become clear, although trust in the Australian government and financial regulators has fallen has a result.
Those who engage in CFD trading have probably noticed this, with Australian 10-year bond yields having sunk to an eight month low in July. Poor employment figures also factored here, but the suggestion of a government-backed fraud has also impacted heavily on bond returns.
The issue here is that this supposed fraud took place under the stewardship of the government and regulators, with neither party taking action to prevent this. However, it’s unlikely that any fraudster would commit such a large-scale scam in plain sight, and the fact remains that these failings may have occurred as a result of inefficiency rather than deliberate misconduct.
More specifically, it’s arguable that the government’s infrastructure has not grown at the same rate as Australia’s superannuation fund, creating a situation where it’s simply ill-equipped to manage it efficiently.