‘Why do you make it difficult?’: Big super in big trouble over delayed claims

For weeks, superannuation and insurance lawyer Melissa O’Neill listened to the excuses pile up. The insurer blamed the super fund, the super fund blamed the insurer. The buck, seemingly, stopped with no one.

When she called the insurance company on behalf of her client making a death benefit claim to receive an update, they told her they were waiting for the super fund to confirm the member’s entitlements. The fund then wrongly advised the insurer the deceased was not insured, only to backflip, before quoting the incorrect benefit amount. On and on it went.

Somewhere along the way, disabled and bereaved Australians trying to make claims through their super funds have been let down at their most vulnerable.Credit: Monique Westerman

A process that should have been far simpler took almost three months to finalise because the fund caused unnecessary delays, O’Neill, from Shine Lawyers, says.

This story is neither unique nor an anomaly. It’s a familiar tale O’Neill has seen versions of time and time again, holding the hands of clients who at their most vulnerable were fighting a David and Goliath battle to claim their own money.

“What funds fail to realise is their responsibilities and obligations to make this type of claim happen quickly is just as important as managing retirement funds,” O’Neill says.

“Super funds will make promises left, right and centre how they will get stuck in and help, but what they say and what they do are two very different things.”

All eyes on the envy of the world

Australia’s $4.1 trillion superannuation sector is often lauded by the labour and union movement as the envy of the world. It has even attracted the praise of unlikely alliances: BlackRock founder Larry Fink and former United Kingdom Tory chancellor Jeremy Hunt.

But 30 years after the Keating government passed the superannuation guarantee reforms, in which funds attracted huge inflows of members’ money and delivered stellar investment returns, many Australians are now dealing with their funds in a way they never have – and they’re not overly impressed with what they’re seeing.

Complaints to the Australian Financial Complaints Authority (AFCA) have been steadily rising over the years. There were more than 7300 complaints recorded in the last financial year, an increase of 5 per cent on the year before. A quarter of them were related to delayed claims handling.

But even the data does not tell the full picture of what people have been going through.

Even the increasing AFCA complaints don’t tell the full picture, says Xavier O’Halloran.Credit: Rhett Wyman

While thousands take their grievances to AFCA each year, many more who are worn out by the protracted process give up on demanding accountability once they receive their entitlements, according to Super Consumers Australia director Xavier O’Halloran.

“The system is really set up to put money in, but poorly set up to take money out,” O’Halloran says.

“As the super system has matured it’s become more important, and more people are hitting retirement with significant balances … They have a similar [customer service] expectation of their super fund as they do from other financial institutions, but they’re finding it’s not the same at all.”

While retail funds, with $750 billion in assets today, were dragged through the Hayne royal commission that uncovered a raft of issues, including AMP charging dead customers fees, the industry funds, which dominate the sector with $1.3 trillion in assets, emerged largely unscathed.

Five years on, industry funds now find themselves in the crosshairs of the corporate and financial regulators, which are increasingly piling on the pressure.

They have called out super funds for not focusing enough on the retirement phase; questioned them over their $12 billion expenses bill; taken fund directors to court for corporate governance failures; and put the industry on notice over inadequate customer service.

But it was the Australian Securities and Investments Commission’s Federal Court action against the $94 billion superannuation giant Cbus this month that would have sent a shudder down the spine of the industry.

ASIC alleged the fund failed to identify and prevent delays that affected 10,000 members claiming death and disability insurance payouts since August 2022 – with the majority of them waiting for more than 12 months for a resolution – and then warned there could be more “enforcement action to follow”, in a sign of how widespread and systemic the regulator believes the misconduct is.

Less than a week later, AustralianSuper announced it would repay $4.2 million to the families of deceased members as compensation for taking too long to process their death benefit claims.

As 3 million Australians over the next decade join 6 million retirees who are already drawing down their super accounts, and the industry’s size poses a greater threat to the country’s financial stability, ASIC can neither afford nor is legally permitted to look away.

“It’s not for us to tell trustees how to do their jobs ... but because super is now so important and complex ... our obligation with enforcing and holding to account in super is arguably even more important for consumers,” ASIC Commissioner Simone Constant says.

Whose job is it?

About 70 per cent of Australians who have life and disability insurance have it taken it out through their super fund. The premiums tend to be cheaper and the costs more effective.

The funds own the insurance policy, meaning they can negotiate better deals and pass on the savings to members, who are third-party beneficiaries – but the law mandates they do “everything that is reasonable to pursue an insurance claim for the benefit of a beneficiary if the claim has a reasonable prospect of success”.

But somewhere along the way, disabled and bereaved Australians trying to make claims have been let down at their most vulnerable.

The task of dealing with members, handling inquiries, submitting claims to insurers and then chasing them has often been outsourced to “under-staffed” third-party administrators. However, under the Corporations Act, super funds are ultimately responsible for failures and breaches of the law.

ASIC’s case against Cbus, for instance, acknowledges the source of the hold-ups as the administrator, but alleges the fund failed to properly assess the scale of the delays and act promptly to redress them, despite being told “very large numbers” of death and disability claims were older than 90 days.

The industry is now having a conversation about what the right mix of outsourcing and insourcing of administration looks like. Would customer experience vastly improve if member services were handled internally? Or would losing the economies of scale exacerbate the issues?

There are also complex laws, as well as family situations, that funds are having to navigate, while managing that cultural and regulatory shift from accumulating funds to paying out members’ retirement savings.

And most people just don’t know what kind of customer service to expect from their superannuation. They deal with it either at retirement, or at a time of great stress and trauma when they have become permanently disabled or lost a loved one.

There are the avoidable delays that super funds are being rapped over the knuckle for, including staff forgetting to request information or giving the wrong advice to insurers and members, and then there are the legal hoops and hurdles that the industry claims are exacerbating the issues.

Obtaining a death certificate can take months, and then if you add estranged family members into the mix or disputes over the beneficiaries, that can further frustrate the process. Then there are members who don’t have death nominations, or the ones who do don’t have binding ones. Trustees are obligated to make sure the money is paid to the correct person.

Simone Constant has ramped up the heat on super fund executives even more as the scandals engulfing the sector deepen.Credit: Louise Kennerley

And then there is the raft of reforms the former Coalition government introduced at the height of the COVID-19 pandemic to improve the superannuation system. While the changes were long-awaited and welcome by consumer groups, there were other tweaks that meant people lost their insurance cover without realising.

ASIC will publish a report early in the new year that it says will demonstrate the issues in the sector are systemic, and the complaints are not as a result of “isolated, complicated cases”. But Constant also pointed to a review the regulator published in May that found few funds provided accessible information to members about binding death nominations, and that the process could be simpler.

“I would say [to the funds], if you think this is complex, and you look after the biggest asset manager in Australia in some cases, and you’re a really experienced CEO or trustee, think about how it feels for someone who is grieving,” Constant says.

Paul Watson, a superannuation and insurance lawyer at Berrill Watson, concedes the administrators are a big part of the problem, but says that should not distract from the core issue or minimise the culpability of super funds, whose job is to look after people’s money and make sure they’re sufficiently resourcing those systems.

He points to the super funds walking away from a voluntary code of conduct in 2021 as evidence of the industry not taking its responsibilities seriously. Like O’Neill and O’Halloran, Watson believes the federal government must legislate a code of practice with teeth for the industry.

“I don’t have a problem with fund administrators existing, but I do have a problem if super funds are not watching them – there needs to be oversight,” Watson says. “If you want to get administrators to do it, you don’t alleviate your responsibilities. It’s still your problem, and you still need to make sure they’re doing their job.”

Assistant treasurer Stephen Jones said the federal government had passed laws requiring funds to have executives responsible for member services, but were considering further reforms. Shadow treasurer Angus Taylor said ASIC’s case against Cbus highlights the urgent need for better governance in the sector.

The superannuation industry is adamant it’s working tirelessly to get members’ money out the door, sending case managers to homes and hospitals if a paraplegic member is unable to sign forms, trawling through social media accounts to find beneficiaries, at times hiring private investigators.

Funds have made improving standards, including communicating better with members, a priority over the past 18 months, according to Mary Delahunty, the chief executive of the Association of Superannuation Funds of Australia.

Mary Delahunty, chief executive officer of the Association of Superannuation Funds of Australia.

“Complex family arrangements, contested positions and all of those things will slow the process down – that means we need to get better about communication and get better at our empathy because naturally [a person claiming a death benefit] is someone who has lost a loved one in an untimely manner. They’re in grief, and we need to be more responsive to that,” she says.

“While the stories are genuinely heartbreaking, and we know we need to improve, super funds look after 22 million people, answer over 5 million calls a year … switch 167,000 accumulation accounts into pension funds and the majority of this is done well. We have to make improvements for people who are asking us to help them in a time of need, but we need to remember this is a well-functioning system that’s served the country well.”

But ASIC and consumer groups don’t believe the industry has gone far enough.

Over the years, William Johns, the founder of Claim Right, has helped thousands of disabled and bereaved people navigate the bureaucratic labyrinth, the bizarre requests and the endless back-and-forth to claim their insurance benefits.

He tells stories of staff at the third-party administrator not being aware of a specific plan someone may be on; a member being told they have insurance and then later told by someone else they don’t; or funds claiming Australia Post lost the application forms.

Some cases border on tragicomic.

“The administrator says we need an original certified ID. The person is in hospital, they lost their arms, how are they supposed to sign? We’re just told the trustee needs the signature in ink. Why can’t we just do it digitally like every other financial institution? When it comes to the vulnerable, why do you make it difficult?” Johns asks.

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