ASIC takes REST to court for preventing super fund members from leaving

Big industry super fund REST will face court over allegations it blocked members from leaving to puff up its accounts.

ASIC alleges REST employees misled super fund members.

Industry super fund REST is in the firing line after the corporate regulator alleged it breached the law by playing hardball with members seeking to leave the fund.

The Australian Securities and Investments Commission lobbed the legal bomb at Retail Employees Superannuation, the operator of the fund’s trust, initiating proceedings in the Federal Court on Tuesday.

ASIC alleges REST padded its trust balance through misconduct, enriching the fund and slugging members with unnecessary fees.

ASIC alleges REST engaged in misleading conduct between 2015 and 2018, attempting to stymie member trying to exit the fund.

The conduct was reported to APRA by REST in 2018, before being referred to ASIC.

ASIC alleges REST had discouraged, delayed, or prevented members from transferring out of the fund and made false and misleading representations about the ability for members to transfer their superannuation.

REST is alleged to have engaged in the false and misleading conduct from at least March 2 2015 to at the latest May 2 2018 through communication by its employees to members both in writing and orally.

However, ASIC alleges the acts took place from at least February 2009.

ASIC alleges REST told members who were considering making, or made, full balance transfers that they were required to hold at least $5000 in their account if they continued to be employed by an employer who made contributions to the fund.

“REST benefited from maintaining a higher number of members within the trust, by discouraging, delaying or preventing members from removing funds from the trust,” court documents state.

It’s also alleged REST benefited from at least $14.8m in funds retained from 1,143 members whose full balance rollover requests were refused or only partly completed.

REST issued a statement noting it was “disappointed” with ASIC launching the proceedings, noting it had self-reported the breach and was remediating affected members.

“REST is currently contacting and remediating members who may have experienced a delay in the transfer of their super as a result of the application of this business process between 1 January 2014 and 2 May 2018,” the company said in a statement.

The corporate regulator alleges REST impeded members seeking to leave the fund, telling them they required an employer declaration stating the date the employer stopped making contributions to the fund or confirming the member’s “choice of fund rights”.

If members were no longer employed by a REST employer, ASIC alleges they were told to obtain a separation certification or confirmation of their termination date and provide it to the fund before they could transfer their full balance to another super provider.

Under the terms of the Superannuation Industry Act REST is required to process full balance requests within three days of receiving mandatory information.

The obligation to rollover funds within three days was introduced in 2013 as part of reforms to the industry.

The law does not allow a trustee to require information about a member’s employment status to be provided before approving a transfer.

Members are not required to show that employers offered them a choice of funds for future contributions before processing requests.

ASIC is seeking that REST pay penalties and publishing court orders on its website for a period of six months as well as placing the order within 30 days in The Australian and other daily newspapers in each state and territories.

The regulator is also seeking REST contact by email or post each current member and former members to notify them of the findings.

No date is yet set for a case management hearing. 

Originally published as ASIC takes REST to court for preventing super fund members from leaving