National Australia Bank (NAB) is to compensate thousands of pension fund customers who had paid for advice they did not receive, Australia’s financial-sector inquiry heard yesterday as it turned its sights on the nation’s pension industry.
The first day of hearings into Australia’s A$2.6 trillion (US$1.9 trillion) pension system heard that a unit of NAB, the country’s fourth-largest bank, had charged customers “plan service fees” for advice they did not receive.
The misconduct occurred between 2012 and last year and affected more than 220,000 customers, said Michael Hodge, a barrister assisting the inquiry.
The NAB subsidiary had promised to pay A$87 million in compensation, Hodge said.
Under questioning, Paul Carter, a former executive general manager for NAB’s wealth division, said that in 2016 management had considered whether it could keep the money that had been misappropriated from customers.
“You looked at that time at various justifications for why NAB might not need to refund that money to customers?” Hodge asked.
To which Carter replied: “I would rephrase that to say we were conducting an investigation to understand the issues and make sure the right decision was ultimately made for customers.”
The Royal Commission inquiry has already roiled the banking and funds-management industry and now it is the turn of Australia’s pension fund sector to answer questions about alleged misconduct and poor performance.
AMP Ltd, Commonwealth Bank of Australia (CBA), IOOF Ltd, Australia and New Zealand Banking Group and Westpac Banking Corp have also charged thousands of customers fees for advice that was not provided, Hodges said.
In his opening remarks at the start of hearings into the retirement system that are expected to last two weeks, Hodge said Australian pension funds were “surrounded by temptation” to put profits ahead of people.
He said the inquiry would examine the so-called fees-for-no-service problem from the perspective of the trustees who manufacture the retirement products.
The inquiry has already exposed similar practices throughout the banking and wealth management industries, wiping billions of dollars off the value of some of Australia’s biggest firms as investors brace for higher compliance costs and stricter regulation.
In an attempt to contain the public backlash, late last month NAB announced it would stop charging such plan service fees for selected products.
NAB and CBA have announced plans to offload their wealth management and pension funds, two of the country’s largest, in the wake of the inquiry’s disclosures.
The latest round of hearings might pile more pressure on the shares of the country’s four biggest banks and top financial planner AMP — all of which the Royal Commission has called to appear in relation to their pension businesses.
Australia has the third-largest pension pool in the world, according to Organisation for Economic Co-operation and Development data, due to laws requiring employers to pay nearly one-10th of every worker’s wage into a fund the person cannot usually access until retirement.
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