Big super funds told to fix poor service instead of blaming system

One of Australia’s biggest retirement funds is demanding simpler super rules while taking up to 1140 days to process death benefits. Finance guru Noel Whittaker reveals where the real complexity lies.

Superannuation is back in the news, with the CEO of AustralianSuper, Paul Schroder, calling on the Treasurer to speed up reforms to make the system “simpler and fairer.”

His main complaint was that retirees who return to the workforce must keep two separate accounts – one to receive their pension payments and another to accept new contributions. According to him, this is far too complex for the average retiree.

He wants the rules changed so a pension account can also receive contributions, claiming this would make it easier for people to retire and move smoothly between work and retirement.

He protests too much. Remember, just this year ASIC took AustralianSuper to task for taking an extraordinary 1140 days to pay a death benefit, even though it had all the information it needed. Other cases dragged on for 438, 412 and 366 days. That’s not because of complex rules; that’s simply poor service and bad management.

Columnist Noel Whittaker. Picture: David Clark

Despite what the big funds keep saying, super is not particularly complicated.

During your working life, your employer – and possibly you – contribute to an accumulation account. The money is generally inaccessible until you reach 60 and retire, except in limited hardship or medical situations.

Once you retire, you can start an account-based pension that pays a regular income and enjoy tax-free earnings. When you later return to work, new employer contributions must go into an accumulation account because pension accounts are legally designed for withdrawals only.

It’s a simple, sensible structure. The accumulation account is taxed at 15 per cent on its earnings, while the pension account is tax-free. Keeping the two separate ensures the correct tax treatment and transparency for both the member and the government. It’s hardly the bureaucratic nightmare that some claim it to be.

What many advisers I spoke to complain about is the inflexibility of the large super funds, which restrict members to just one accumulation and one pension account. This rule – which has nothing to do with government – stops members using a clever strategy to reduce the death tax.

Advisers often suggest that clients withdraw money from an existing fund, then re-contribute it to a new accumulation account made up mostly of tax-free money. Later withdrawals can be taken from the older account, leaving the tax-free balance untouched. It’s a simple move that can make a big difference over time – but it’s impossible if the fund refuses to allow three accounts.

There is a push to make super “simpler and fairer”.

Instead of complaining about the supposed complexity of super, big funds should focus on improving the service they deliver to their members.

They could start by answering the phone promptly instead of leaving callers on hold for hours, and by speeding up death-benefit payments, which they are notoriously slow to process. If they devoted half as much energy to helping their members as they do to lobbying for rule changes, the system would run far more smoothly for everyone.

It reminds me of a story about Winston Churchill. One morning his butler realised he’d forgotten to press Churchill’s shirt. To distract him, he polished Churchill’s coins and laid them out in a perfect, gleaming row. When Churchill entered the room, he was so struck by the brilliance of the coins that he never noticed the creased shirt. It’s a timeless lesson in distraction – when you don’t want people to see your mistake, shine something else instead.

When large funds demand sweeping legislative change in the name of “simplicity,” it looks suspiciously like those polished coins – a shiny distraction from their own shortcomings. If death benefits take months or years to pay out, phones go unanswered, and members can’t get clear guidance, the problem isn’t the architecture of super but the way it’s being managed.