First Home Saver Accounts

The Government has confirmed its intention to establish First Home Saver Accounts from 1 July 2008 to assist Australians to save for their first home.

The account may be opened by individuals aged 18 and over who:

• has not previously purchased or built a first home in Australia to live in;
• does not have or has not previously had an account; and
• makes an initial contribution of at least $1,000.

Individual contributions of up to $10,000 (indexed) may be made into an account each year. These contributions may be made by the account holder or another party, such as an employer, on behalf of the account holder.

Contributions have to be made from after-tax income. Contributions will not be subject to tax when contributed to an account.

The Government will make an additional contribution which will be paid directly into the account. The contribution level (based on a maximum benefit of $5,000 of individual contributions) will be either 15 per cent, or the account holder's marginal income tax rate less 15 per cent, whichever is greater.

There will be conditions on withdrawals.

The Government is seeking comments and submissions by 7 March 2008 to assist in settling the final administrative and legislative features of First Home Saver Accounts.

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Following a meeting with the Council of Financial Regulators on 8 February 2008, the Treasurer has announced a package of 4 measures to promote competition in the retail banking market by making it easier for customers to switch accounts between banks.

The measures are:

• A listing and switching service that requires banks to provide their customers with accurate information on all direct debits and credits to take to a new bank for easier transferral, if they switch. Banks will also be required to assist new customers to re-establish their direct debits and credits;
• One single consumer complaints hotline 1300 300 630 providing a first contact point for all consumer complaints about basic banking products – to be provided and maintained by the Australian Securities and Investments Commission (ASIC);
• Comprehensive consumer education resources , including a detailed and informative web site providing advice on how to switch, and the costs and benefits of doing so, through the www.understandingmoney.gov.au site; and
• An ASIC-led industry review of the fairness of entry, exit and early termination fees that apply to mortgage accounts and providing better information to consumers to inform their switching decisions.

The Government has expressed its desire that the ASIC review would be " shining a light on fees...(and) putting downward pressure on them".

Implementation will begin immediately, and all aspects of the switching package will be finalised by November 2008.

Initially the listing and switching service will be operational in an interim form that involves banks providing written advice and support until IT systems allow full implementation by November 2008.

The Reserve Bank of Australia (RBA) will oversee the Industry initiatives.

Separately the Australian Payments Clearing Association (APCA) has been reviewing ways to improve the switching of transaction accounts, particularly the movement of standing instructions (direct credits and debits) on accounts (see my November post here and APCA's January Press Release here (pdf)).

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