HESTA to pay for unlisted revaluation failures

The super fund delayed downgrading unlisted assets at the height of the Covid crisis, leading more than 100,000 members to lose out, APRA says.

HESTA will pay members caught out by its revaluation of unlisted assets during March 2020.

HESTA will compensate more than 100,000 members caught out by its revaluation of unlisted assets during March 2020, when markets were in freefall due to the Covid crisis.

In the latest scandal to hit the under-pressure industry battling claims of poor governance and customer service standards, the prudential regulator on Tuesday took aim at the $84bn super fund for health workers, saying its processes were inadequate for the deteriorating market conditions as the pandemic hit.

The super fund’s 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, including MySuper — this is where most of its members sit — left members worse off, with one member losing $17,000, the Australian Prudential Regulation Authority (APRA) said.

It comes days after the corporate cop sued peer Cbus for mishandling $20m worth of death and disability claims.

HESTA downgraded the value of unlisted assets in five of its ‘choice’ options on March 20, 2020 but held off downgrading the same assets in its other options until March 27.

The fund’s move to revalue the assets seven days apart was unfair to members who switched from the adjusted options to the unadjusted options within that week, APRA said. It was also unfair to members who were issued units in the unadjusted options during the relevant week, the regulator said.

Around 110,000 of its 1 million members were affected by the staggered revaluations, HESTA confirmed to The Australian.

One member who switched from an adjusted Choice option to the unadjusted MySuper option was worse off to the tune of $17,000.

The regulator launched an investigation into the fund’s March 2020 revaluations in January of this year. HESTA’s policies and procedures around unlisted asset valuation decisions had strengthened since 2020, APRA said. This, along with the fund’s decision to make payments to affected members “to make them good” led the regulator to close its investigation without further action.

The median repayment to affected members will be around $17, a HESTA spokesperson said.

For current members, the funds will be paid into their accounts, while members who have since exited the fund will receive the compensation through the tax office.

There were no findings of breaches or contraventions of the law, the spokesperson said.

HESTA’s poor processes leaving members worse off is just the latest scandal setting alarm bells ringing on the $4 trillion super sector, with deficiencies across a number of functions now a glaring concern.

Construction industry super fund Cbus is being sued by the corporate regulator ASIC for allegedly mishandling $20m of death and disability claims and for not taking appropriate action when it was warned about the failures.

The failures on paying out claims follow ratings agency Morningstar downgrading Cbus from average to below average, partly due to its union links and other personnel concerns.

The Australian Securities and Investments Commission has also warned the issue may extend beyond Cbus, with the regulator now conducting a deep dive into the industry.

The financial complaints ombudsman, meanwhile, revealed last week that super fund complaints around claims handling had more than tripled since 2019, with death benefit and insurance claims the number one grievance.

More than 7300 super fund complaints were sent to the Australian Financial Complaints Authority in the 2024 financial year, with death benefit, total and permanent disability and income protection complaints accounting for around 40 per cent of all member grievances for funds that received a minimum of four complaints.

Even on the basic back office admin functions, funds are falling short.

Last month, the second biggest fund in Australia, the $300bn Australian Retirement Trust, suffered a technical failure that stopped pension payments going through to its members for days — but it kept quiet on the issue, failing to send out any emails to its broader membership alerting them to the issue. Affected members were informed where the fund had an email on file.