The Australian Securities and Investments Commission is poised to issue 50 superannuation funds with a ‘please explain’ notice over their arrangements with contributing employers and insurance providers.
“We intend to serve notices to approximately 50 trustees in the coming weeks – from across the retail, corporate, and industry sectors – asking a range of questions about their relationships with insurers and employers,” ASIC senior executive leader, investment managers and superannuation, Ged Fitzpatrick said.
He said compliance with the notice would be compulsory, while noting it had been designed to “make it as easy as possible” for super funds to answer.
Fitzpatrick also promised that funds would be given “around six weeks” to respond.
“We are hoping that the responses to the notice will provide us with some important facts about these two core areas and we’ll use the data to potentially to issue further notices to some trustees to answer further questions.”
Fitzpatrick made his comments at the Australian Institute of Superannuation Trustees’ Conference of Major Superannuation Funds 2017, which was held on the Gold Coast March 22-24.
In his address to the conference, Fitzpatrick said that the arrangements super funds have in place with their contributing employers and insurance providers were two areas for proactive work in 2017.
Employers are consumers with biases
“We’ve been interested in the area of insurance for some time, both within and without super, and this year we are undertaking a special insurance in superannuation project looking at complaints handling and disclosure, as well as aspects of incentives, potential conflicts and culture that might impact consumers,” Fitzpatrick said.
“We are also looking at the role of employers in super [which] is something that ASIC would like to understand much better. Historically we have focused our attention more directly on the relationship between the trustee and the member. However, employers have a significant impact on the super outcomes of their employees.”
Fitzpatrick said it was worth acknowledging employers are themselves consumers in this process and “may also be subject to [behavioural] biases such as inertia and informational biases” as any other consumer would be.
He said ASIC’s project to examine the relationships trustees have with their sponsoring employers and insurance providers will consider issues related to advice and benefits provided to employers and employees, disclosure, and the role of third parties in the employer-trustee relationship, such as payroll providers and clearing houses and entities that run corporate tender processes.
“There are a whole set of relationships that we want to look at more closely later this year.”
ASIC is interested in how super funds are managing the “member experience”, right through from the readability of product disclosure statements through to the claims handling process, Fitzpatrick said.
Warning over account consolidation advice
“Trustees should be there operating for the member in their engagements with the insurer,” he said.
Fitzpatrick acknowledged that the additional scrutiny comes as the role of insurance within super is being questioned more broadly, including by the Parliamentary Joint Committee Inquiry into life insurance.
One issue he singled out for further attention was the way super funds handle their communications with members who have multiple accounts, saying there was a need for the industry to be “very, very careful” when trying to reduce “the excesses in multiple accounts”, and that this was handled in a manner aligned with members’ best interests.
ASIC is in the process of taking court action against Westpac Bank for breaching advice laws when recommending clients roll their super into a Westpac-owned super account. Westpac and its subsidiary BT Financial Group has rejected the regulator’s interpretation of what constitutes general versus personal advice and pledged to vigorously oppose the action ASIC has brought against it.
APRA warning on default insurance
Australian Prudential Regulation Authority deputy chair Helen Rowell flagged that the prudential regulator agrees with those who argue it is time to review the group insurance offerings of default super funds.
“We need to take a bit of a step back to consider what is the role of insurance in super, and in particular the different roles of default insurance versus choice insurance,” Rowell said.
“In a MySuper world where you want to have simple, comparable, low-cost products, then there is an argument that the insurance arrangements for products at a default level should be more basic.”
MySuper is the name of the licensing regime for the super fund products that employers are allowed to pick as the default fund for their workers.
“Trustees should be thinking about what is the appropriate level of insurance for the default and how should you structure a choice offering that allows members to dial up or dial down their level of insurance. I think we are seeing a real tension now between insurance and accumulation for retirement,” Rowell said.
“We’ve got an SG [superannuation guarantee] of only 9.5 per cent, low returns, expenses are chewing into that more, insurance costs are chewing into that more, so there needs to be a real robust view taken by trustees about what that concept of unreasonable erosion means, and do they need to actually pare back their insurance a little bit, and do they need to change the design and level to be more basic.”
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