Australia’s biggest super fund sued over death benefit payouts

The corporate watchdog is preparing to release a damning report into widespread misconduct in the superannuation industry, after revealing on Wednesday it had taken legal action against Australia’s largest fund for allegedly delaying the payout of death benefits.

The Australian Securities and Investments Commission (ASIC) on Wednesday took the $365 billion AustralianSuper to the Federal Court for allegedly failing to process almost 7000 death benefit claims efficiently, honestly and fairly between 2019 and 2024.

But the entire sector is preparing to feel the regulator’s wrath when it releases a report within the next few weeks that is expected to show similar levels of wrongdoing across a range of funds.

Governance issues at super funds is firmly on the corporate regulator’s radar.Credit: Aresna Villanueva

“This alleged misconduct by Australia’s largest superannuation fund we consider had profound impact on a large number of people at what was a particularly difficult time in their lives,” ASIC deputy chair Sarah Court said.

“It has in our view betrayed the trust of AustralianSuper’s customers and their family members.”

In documents filed with the Federal Court, ASIC has claimed AustralianSuper took between four months and four years from the date the claim form was returned to either pay or decline at least 6897 claims, including almost 1000 members who had a valid binding death nomination at the time of the member’s death.

Four members waited more than a year to receive payouts, the regulator has alleged.

In one case, AustralianSuper took four years to make a payout. The fund has claimed that in that single instance, the date of birth provided by the beneficiary was incorrect, and they did not respond to an inquiry seeking clarification.

AustralianSuper has blamed a sharp increase in member deaths during the pandemic, and the significant impact of the health crisis on staffing numbers, causing a backlog that affected the processing of claims.

“We recognised this and developed a strategy with our service provider to clear the backlog of claims,” a spokesman for the super fund said. “Despite some improvement, we were not satisfied the backlog was reducing fast enough, so we made the significant decision to bring the processing of death claims in-house.”

AustralianSuper said it had invested $120 million in improving member services, including by bringing claims handling in-house. The spokesman said the fund had 75 case managers handling death claims and had seen a significant reduction in processing times.

ASIC deputy chair Sarah Court said the fund’s alleged misconduct “had a profound impact on a large number of people”.Credit: Dominic Lorrimer

ASIC has claimed in court documents the board was told on November 10, 2020, about a backlog of death benefit claims arising from its third-party contractor Link. Link was also the third-party administrator for Cbus and behind the significant delays to the construction fund’s payout of life insurance and death benefits.

Five months later, the fund identified the backlog as a systemic issue, and a year later, the quality manager was informed by her direct report that the fund may be considered to be in breach of the law.

Court said funds could not abrogate their responsibilities to their members by blaming delays with their third-party administrators. She also pointed to the alleged misconduct dating back to 2019 – more than six months before the COVID-19 pandemic wreaked havoc across the country.

“AustralianSuper’s then chief executive officer [Ian Silk] was ‘far from impressed’ with the backlog,” ASIC filed with the Federal Court.

There is no law that requires funds to make a payout within four months, but AustralianSuper has set that timeframe as an internal target. Court told The Age and Sydney Morning Herald she was not seeking a ruling by the court to define what is considered a reasonable time for funds to process claims, but said she believed in this instance, four months was too long.

The deputy chair said the regulator’s review of a range of super funds’ processes found the suite of issues that had stung AustralianSuper and Cbus were common across the sector.

“We are about to release a report very shortly and that will indicate the breadth of our concerns of misconduct [in the superannuation sector],” Court said. “We think it’s widespread and having a big impact on their members … Nobody can be under any misapprehension about how seriously we view this conduct.”

AustralianSuper, which this masthead last month revealed was being investigated by ASIC, started repaying millions of dollars in compensation last year after finding beneficiaries of deceased members were facing lengthy delays to their death benefit claims. Its internal review was conducted amid pressure from the corporate watchdog on super funds to clean up their act and improve member services.

Cbus has entered into mediation with ASIC after conceding it failed to identify – and then prevent – delays to death and disability insurance claims of 10,000 members since August 2022. More than half of those were still awaiting resolution a year after lodging a claim, ASIC has alleged in court documents.

Super Consumers Australia chief executive Xavier O’Halloran said the litigation against AustralianSuper demonstrated why it was critical for the federal government’s mandatory minimum service standards for the industry were soon implemented.

“It’s really important the regulator is testing out what timeliness means in the law,” O’Halloran said. “There’s high-level principles but that gives no certainty to consumers.”

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