Immunity of super trustees astounds legal experts

The lack of penalties against superannuation trustees who fail to act in clients’ best interests has been described as ‘astounding’.

Perth widow Kim Garbutt who is fighting AMP on her late husband's super account.

A decades-old hole at the heart of the laws governing superannuation trustees that means they cannot face any penalties regardless of the size of wrongdoing is “astounding”, according to one of the nation’s top legal experts on the $2.6 trillion sector.

Maurice Blackburn principal of superannuation and insurance Kim Shaw, who has taken up the case of widow Kim Garbutt, who claims AMP failed to act in the best interests of her late husband, said the carve-out in the law, which went back 25 years, was “pretty amazing” and meant authorities were effectively powerless to take action against trustees who had broken the law.

“There are penalties elsewhere but with that particular best-interests provision there’s not, and it’s pretty astonishing, that’s for sure,” Ms Shaw told a joint investigation between The Australian and ABC’s 7.30.

The carve-out means that des­pite the responsibilities for trustees being clearly set out in the Superannuation Industry (Supervision) Act 1993, including that they act in the best interests of members, the penalties set out in that same act — including “punitive” damages and up to five years’ jail — do not apply when wrongdoing occurs.

However, while authorities could not take any action against trustees breaking the laws, ­aggrieved super investors could launch their own legal action, an approach that is being taken by Ms Garbutt.

“If a person was subject to a breach of the superannuation laws that relate to trustees acting in the best interests of their members, it still means that they can recover any loss incurred but they won’t see a civil penalty or a criminal penalty against the superannuation trustee,” Ms Shaw said.

Ms Shaw considers AMP is in breach of those laws and is seeking to take action on behalf of Ms Garbutt, who has been seeking a resolution to her husband’s case for a decade. Her husband of one year, Craig Mollison, the fath­er of her two children, suffered from severe alcoholism and died in 2008 aged 39.

After her husband’s death, Ms Garbutt discovered he had a super account with AMP through which he had taken out a life ­insurance policy. She also discovered that the policy had lapsed just five months before his death after the super fund had been bled dry by insurance premiums, fees and charges.

Ms Garbutt said without the gouging, the account would not have been bled dry and the insurance policy would not have lapsed before Mollison’s death.

An AMP spokeswoman said the superannuation “fees and costs charged were consistent” with the terms of the agreement Mollison had with AMP.

With Paige MacKenzie of ABC’s 7.30