Iress failed on super underpayments, excess withdrawals, ESSSuper alleges

In the latest hit to the scandal-plagued super sector, ESSSuper alleges a litany of failures by admin provider Iress across member payments, tax obligations, life insurance and risk and compliance.

ESSSuper is suing Iress and its subsidiary Financial Synergy Holdings.

Superannuation admin provider Iress underpaid hundreds of ESSSuper’s pensioners, allowed members to incorrectly withdraw $1.57m from its defined benefit reserve and failed to apply default life insurance to certain members, one of whom subsequently died, according to documents filed in the Federal Court.

In the latest hit to the scandal-plagued $4 trillion super sector, Iress is accused of a litany of failures across member payments, tax obligations, life insurance and risk and compliance, as revealed in court documents seen by The Australian.

ESSSuper, the $37bn super fund for Victorian government and emergency services workers, outsourced some of its admin services to Iress in 2019 and handed full admin control to the company in early 2022.

The super fund is now suing Iress and its subsidiary Financial Synergy Holdings, alleging breaches of contract and misrepresentations by the software provider.

But regulators have shown little patience for funds playing the blame game, with the Australian Securities and Investments Commission on Wednesday warning the industry not to blame third-party administrators for problems in servicing their members.

ASIC Commissioner Simone Constant said trustees of super funds were responsible for the level of service they provided to their members, even if it was handled by outside administrators.

“However you arrange your service delivery, you are always accountable for your service delivery,” she said.

Blunders from day one

Iress’ blunders began virtually as soon as ESSSuper handed admin control over to the admin provider in early 2022.

As early as April of that year, Iress “failed to ensure that all withdrawals by defined benefit members of the scheme were paid correctly,” the super fund said in its statement of claim.

Between April 2022 and at least November 2023, members with both accumulation and defined benefit entitlements were allowed to withdraw excess funds from their accumulation accounts, with the overdrawn balances being taken from the super fund’s reserves, according to ESSSuper.

At least $1.57m was incorrectly withdrawn by these members, with $255,000 yet to be recovered.

Separately, Iress also failed to pay the correct amount to certain defined benefit pensioners in March 2022 due to incorrect tax calculations. More than 250 members were underpaid and 23 were overpaid, according to ESSSuper.

Just over a year later, it erred again on retiree payments, with some retirement income stream pensioners again underpaid due to a system issue.

Iress’ failures extended further, to insurance coverage. ESSSuper, like other super funds, is required to provide default insurance cover to members older than 25 and with an account balance of $6,000 or more

In early May 2024, the fund found a deceased member had been eligible for life insurance but that Iress failed to provide any cover for that member.

According to ESSSuper, Iress treated members whose cover had ceased from April 1, 2020 as having opted out of their insurance. The admin provider then failed to monitor whether those members’ circumstances changed, making them again eligible for default insurance, the fund alleged.

Other failures by ASX-listed Iress include various tax blunders, including that for fiscal 2022 and 2023, defined benefit salary sacrifice contributions for about 37,000 fund members were reported to the ATO incorrectly and in duplicate.

Further risks to members include that ESSSuper has, since early 2022, had to manually input daily unit pricing changes for investments because the data Iress sent to the fund’s custodian, State Street, was insufficient, according to the fund.

“The fund has been forced to rely on an interim arrangement for unit pricing which involves it (rather than the Custodian) expending resources to manually strike daily unit prices,” the fund said in the statement.

“Further, the interim arrangement described has resulted in the fund being exposed to the risk that the valuation of members’ accounts and overall investment pools is inaccurate by reason of manual error,” the statement said.

The Australian understands all members financially affected by the admin issues have been repaid.

Iress has acknowledged the proceedings but this week denied the claims, saying it would file a defence with the court. Iress continues to provide the contracted services to ESSSuper, with the contract understood to be a five-year term from early 2022.

Iress declined to comment. ESSSuper has been contacted for comment.

Super’s wave of scandals

The legal action comes as a wave of scandals flood the $4 trillion super sector, much of it related to back-office functions, prompting regulators to put the industry on notice.

ASIC’s Ms Constant read the riot act to super CEOs on Tuesday following claims of funds delaying payment of death and disability claims.

Cbus has been front and centre of the scandal, with the regulator suing the fund for allegedly mishandling $20m worth of death and disability claims.

Cbus chair Wayne Swan has blamed its administrator, Link Market Services, for the high level of complaints against the fund over member services — a claim which Link has rejected.

The $84bn health industry fund HESTA, meanwhile, is compensating more than 100,000 members over a move to downgrade the value of unlisted assets in some of its ­options in March 2020 but delay downgrading those same assets in other options for seven days, a move that left many members worse off.

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