Crunch time for big super as admin upgrades cause blackouts for over 1 million of accounts

Over 1.1 million HESTA super fund members won’t be able to switch investments or have contributions processed for two months. Here’s why.

ASIC is due within weeks to shed a light on how well or poorly super funds have been servicing death claims.

There was a time not so long ago when it seemed industry super funds could do no wrong. When the financial services royal commission probed wrongdoing in the sector, retail funds took a battering but industry funds came out unscathed. And member flows followed, boosted by standout investment returns.

Rapid consolidation in the years since was marketed as a win for members, but we now see the true impact of a relentless drive to cut costs – substandard member services, including widespread delays in paying out disability and death benefits, have brutally tarnished the sector’s reputation.

AustralianSuper and Cbus Super have been the main culprits so far but there are others, as the Australian Securities and Investments Commission has warned.

We’ll hear more in the coming weeks when the regulator publishes its deep dive into how funds handle death claims.

For now, funds are keeping their heads down, hoping they’re not the next target on ASIC’s hit list. But these problems aren’t going away.

Indeed, as the super industry swells – we’re at $4 trillion and growing rapidly – and mergers keep coming, funds have no choice but to put their minds to fixing up woeful back office functions that are not fit for purpose.

It could prove a painful exercise, at least in the short term.

For the $90bn healthcare industry fund HESTA, the solution is to ditch MUFG Pension & Market Services (formerly Link), the admin provider at the centre of the scandals. It is just about to begin the mammoth task of shifting administration services for its 1.1 million members to Grow Inc.

HESTA chief executive Debby Blakey.

But in doing so it will force a nearly two-month blackout on members.

From April 12 until June 2, HESTA will not process member contributions, investment switch requests or death or disability claims. A notice sent to members in February details the impact on accounts.

“Contributions will be processed after the limited services period but with an effective date based on the date received,” it says.

“Any investment switch requests received during this time will be processed after the limited ser­vices period, with an effective date of the date received.”

But the fund omits any detail on what happens if there’s a big move in markets through the shutdown, with any contributions made during this time sitting in cash for the 52 days.

There’s also no mention of how HESTA will cover any shortfall to “make good” with members if there are losses (or gains) in that period.

It’s the same with switching; HESTA hasn’t given any detail on how it will ensure members aren’t worse off if there’s a market meltdown after a member has put in a request to move to cash.

The length of the blackout has raised eyebrows among some in the industry. A big market drop across a seven-week period is not out of the question.

In the space of a few weeks between mid-February and late March 2020, sharemarkets around the globe, including in Australia and the US, plunged more than 30 per cent.

Already 2025 has been incredibly volatile as investors get to grips with Donald Trump’s tariffs and war on government largesse and we hear more talk of recessions and higher inflation.

HESTA chief executive Debby Blakey says it is the largest technology project in the fund’s 38-year history.

“We’re confident it will set our business up to deliver better outcomes for our members,” she says.

“Grow’s faster, customisable technology will allow us to continually innovate and improve our services, helping us to deliver support for members’ current and future needs. It is expected to help keep costs down and allow us to more quickly adapt to the evolving super landscape.”

HESTA is the first to move but won’t be the last. Other major industry funds also are exploring their options as they wait for their contracts with Link to run out.

Along with HESTA, Grow has won a couple of other smaller super clients. But the arrival of global admin giant SS&C will likely shake up the sector and deliver much-needed competition.

ASX-listed Insignia recently announced it would outsource its admin to SS&C, which has had its eye on the Australian market for years but is only now establishing a footprint.

SS&C, whose clients include Vanguard, JP Morgan and Goldman Sachs, has received “many” inquiries from super funds interested in its admin services since announcing the Insignia deal, according to founder Bill Stone.

“The world-class super system that you have built in Australia now needs to have world-class support throughout,” Stone told The Australian.

“You want to have things done the same way every day that are as bulletproof as possible and SS&C has built its business on being able to do that for large, sophisticated organisations that demand very tight accuracy and very tight member engagement.”

Insignia’s current in-house admin team will move to SS&C as part of a three-year program to simplify its master trust business. Industry funds will be watching closely.

Originally published as Crunch time for big super as admin upgrades cause blackouts for over 1 million of accounts