Q: I’m writing to see if you have any view on the fact that Colonial have frozen the Income funds belonging to a SMSF, and I have no idea when the suspension on redemptions will be lifted. Since the freeze the share market have increased about 35%.
Trish’s response: I have many views on the activities and decisions made by financial organisations, superannuation funds and fund managers over the past two years, and I will be sharing these views in the September 2009 edition of THE SOAPBOX, as part of the September SuperGuide newsletter.
More specifically, your question relates to income funds managed by Colonial First State (CFS). In October 2008, CFS issued an announcement stating that: “Following the market’s reaction to the Government’s guarantee on banking deposits and decisions by several fund managers of mortgage funds to suspend redemptions, Colonial First State will also suspend applications, daily withdrawals and switches relating to funds with significant investments in mortgages.”
The rush to withdraw savings from income-style investments that didn’t have the Government’s guarantee, and switch those savings to Government-guaranteed bank deposits triggered a crisis in the mortgage fund sector.
According to Colonial First State, the CFS funds that have been suspended/frozen are:
- Colonial First State Wholesale Income Fund
- Colonial First State Income Fund
- FirstChoice Wholesale Income option
- FirstChoice Income option
- Managed
- Bricks and Mortar Fund
- Guaranteed Mortgage Fund
- Rollover and Superannuation Fund – Income option.
Note that CFS has announced that it will continue to make pension payments and pay distributions to investors who have savings in frozen funds.
The information above was released in October 2008, and I could find no update since this time on the CFS website. As a result, I contacted CFS directly for the latest information on the status of these funds and a CFS spokesperson provided the following response (which I have quoted in full):
“Colonial First State has a responsibility to always act in the best interests of its investors. To that end, Colonial First State’s mortgage funds, including the Colonial First State Income Fund, remain suspended.
Mortgage funds invest in assets like Australian-based mortgages, fixed interest investments and cash. Mortgages usually provide a steady rate of return and are conservatively managed through strict lending criteria. Mortgages, however, are not easily turned into cash.
Where the level of demand for cash withdrawals exceeds the level of cash available, particularly in extraordinary circumstances, the fund may need to suspend. Selling assets quickly, simply to pay the withdrawal requests, would not provide sufficient time to deliver the optimal return to investors. For example, the assets may be sold at a discount to their market value, which would disadvantage all investors.
By suspending withdrawals, payments can then be made as sufficient cash becomes available as the mortgages mature. Colonial First State is regularly processing withdrawals from these funds.
We have continued to pay income distributions from the funds monthly, as usual. We have also continued to make pension payments to those pensioners invested in the suspended options.
At this stage, the funds remain suspended as the underlying assets are still liquidity constrained. We are working closely with industry and government regulators to examine ways in which we can return liquidity to the sector.
Investors should contact their financial adviser or Colonial First State directly on 13 13 36, if they have any questions about their investments with Colonial First State.” [end of CFS response]
Note: If you have money frozen in a mortgage fund, and you’re suffering financial hardship, then you may be able to apply to the frozen fund in question for hardship relief, seeking withdrawals of up to $100,000 in a calendar year. Not all mortgage funds offer hardship relief. For more information, refer to ASIC’s fact sheet here. (The previous maximum withdrawal amount due to financial hardship was $20,000.) You must satisfy one of the following conditions to redeem cash from a frozen mortgage fund:
- Unable to meet reasonable and immediate family living expenses
- You are permanently incapacitated
- You are unemployed for at least three months and have no other financial resources.
- Where the original investor has died and you have inherited the deceased investor’s assets and you’re struggling financially.
I have read with interest the message and your comments.
We are of the opinion that the conditions which prompted the original ” freeze ” have improved considerably therefore we, the investors, should be told when the fund will be unfrozen and where the frozen money has been invested…any risk investments?
Regards Tony.
We are waiting on frozen funds in Colonial State to be released, Its an estate from our late mother. We keep being told we MIGHT receive 10% then only to be told its been deferred, till the next meeting, The four of us siblings are frustrated over the whole matter. Two of us are struggling and are relying on the funds to get us through. Our mother lived a frugal life to leave us all something. We should be advised on when the fund will be unfrozen, as we are all in limbo. Regards Lynne
My poor grandmother has got money invested with Colonial State. It been almost a year and a half since her account has been frozen. She been there so many times to try get her money but with no luck. I think if it your money you should have access to it. Colonial State are just being greedy making money from peoples money. Still no sign when it going to be unfrozen.
My comments are not dissimilar to Lynne’s. Like Lynne, my late mother’s estate is caught up in the “super freeze.” (Sadly, there are probably plenty of others hard working Aussies in a similar situation.)
Given the current state of play with frozen funds and that it seems that there is no thaw in sight, Deceased Estates that have cleared probate must fall under a dispensatory category enabling the release of those deceased estates. It seems only decent.
It is not unreasonable to suggest that such estates fall should under a compassionate grounds ruling.
If anyone has any news on the “thaw” it would be welcomed.
I am totally and utterly disgusted with what is happening with our hard earned
money, and why cann’t we have that money which is frozen, it is rightfully ours, and If it very hard
to understand why, I believe that this is totally and utterly against the LAW to keep someone else
is money. We are going to go to a Solicitor and see where we stand….the only way you can get the
money is every three months you could get a small amount of it….very silly I think…what is the
government tried to do, run our lives completely. If any one out there got the answer please reply to this email. regards Joan
Hi Joan
Sorry to read about your circumstances. The GFC hit three years ago and you would expect that the critical cash flow times had settled down for these frozen funds. I have attempted to get information from a major financial organisation about some of these funds on behalf of our readers and the organisation never responded – not a good sign and certainly something the Financial Ombudsman should be interested in. You may also want to consider contacting the Financial Ombudsman ( http://fos.org.au/centric/home_page.jsp ) about your situation. We would be very interested in hearing how you go.
Regards
This statement made by this web site IS NOT TRUE ” If you have money frozen in a mortgage fund, and you’re suffering financial hardship, then you can apply to the Australian Securities and Investments Commission (ASIC) for withdrawals of up to $100,000 in a calendar year. ” ASIC are not he ones who approve this, if the fund willl not accept hardhsip applications there is nothing that any one can do under the law. You are risking breaking the law yourself by saying this.
Hi Tom
Thanks for your comment. Yes, you are correct that applicants don’t apply to ASIC for hardship relief, rather, the responsible entity needs to apply to ASIC to be able to offer hardship relief to investors, and not all mortgage funds have applied for this relief. We will correct this typo in the article.
If the responsible entity has not applied for this relief, then it cannot offer such relief to investors in the frozen fund. You can find more information in ASIC’s fact sheet on this issue: http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/info111-information-for-investors-in-frozen-funds.pdf/$file/info111-information-for-investors-in-frozen-funds.pdf
Please also note the publication date of this SuperGuide article.
We have not broken the law by writing this article, nor have we broken the law by writing a typo, although we appreciate you letting us know about the typo.
Thanks and regards
Trish