Pointed Solution

Pointed Solution

Sydney Morning Herald

Wednesday November 14, 2007

Anne lampe

Many credit card holders spend money accumulating points they will never use.

Airlines never seem to have enough seats available to redeem them when point holders want to fly, so often they accumulate unused and some eventually expire.

Now Westpac and its financial services arm, BT Financial Group, have come up with a novel use for those unused points earned from various purchases on Westpac credit cards: convert them into after-tax super contributions to a specially set-up BT super account.

The more points card holders earn using their credit card, the more they will have available to put into super as a personal after-tax contribution.

But is it another fee-generating exercise or a novel solution?

Patrick Clarke, BT's senior superannuation manager, says the idea emerged from focus group research that showed people were not putting enough into their super. Many Westpac customers also had unused points.

A marketing brain suggested marrying the two.

The research also revealed perceived advantages in bundling products such as home loans, savings, credit cards and super all under the one umbrella. Bundling makes unravelling and moving to competitors more difficult.

Clarke says as far as he knows BT is the only financial house that has tapped credit card points in this way.

The scheme does not allow unused points to be converted to super contributions to any other fund than a BT Super for Life account that costs $5 a month to run and charges a 0.99 per cent management fee on funds, other than those invested in cash.

The points gathered by spending on Westpac standard, gold and platinum cards can be converted to contributions to that account or to an account set up for a spouse or child.

The conversion rate is variable and depends on the accumulation formula attached to each class of credit card.

For instance, a card holder with 30,000 points (on a basic card that means spending $30,000, although the gold and platinum cards accumulate points at a better rate) would get a $150 conversion into a super account contribution and up to $750 if there are bonus points attached to the fancier cards.

As that contribution is after tax, depending on the account holder's income, it could also attract the Government's co-contribution of up to $1.50 for each $1 contributed up to a cap.

But the BT super account costs at least $60 a year to run.

Apart from choosing cash, which pays 5.25 per cent a year, there is a choice of conservative, share, balanced or a mix of these funds, on which almost 1 per cent a year is charged.

Clarke says on a standard card, 1000 points roughly translates into $5 for super.

So unless the amount converted adds up to more than about $70 a year, the account won't do much accumulating.

There is a co-contribution benefit, which is based on the gross amount going into the fund and not the net amount after fees.

Clarke says for people who push all their business or household expenses through their credit cards and accumulate many tens of thousands of points, the deal provides the opportunity to get super money for nothing as the points would otherwise be used to redeem merchandise or remain unused.

There is no attempt, he says, to encourage people to spend more on credit cards but to give them another option to do something valuable with unused points.

However, if you already have a super account elsewhere, you are now going to be paying two lots of fees to run the second account.

That means it isn't worth much unless you spend up big on credit cards.

It also raises the question about the value of credit card points.

Customers spend up big to accumulate them, paying card fees and interest on purchases - and often they amount to nothing.