Industry superannuation fund Hostplus has staunchly denied any wrongdoing after counsel assisting the Hayne royal commission said its retention strategies may have fallen below community standards. Another industry fund, Catholic Super, blamed possible breaches of prudential standards on the clandestine actions of a single employee whom the fund promptly sacked after giving evidence.
Both funds made these assertions in written submissions to round five of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry after being singled out for potential misconduct in counsel assisting’s closing submission. Industry funds were largely let off the hook during the inquiry’s round on super, unlike many for-profit retail funds that could face the prospect of criminal charges.
On Monday, new Industry Super chief executive Bernie Dean told the ISA Stakeholder Forum that industry funds had “been given a clean bill of health by the royal commission”.
“The outrage at the banks is real. They are in a tight and very dark spot; people’s confidence in super is resilient. They’re actually looking at their super accounts and taking matters into their own hands,” he said. “On our rough estimate, one in five retail fund members are looking to switch to an industry super fund.”
Hostplus’s retention strategies
While Hostplus did not breach any laws, counsel assisting found it may have fallen below community standards with its strategies to keep inactive and low-balance accounts in the fund, including letters it sent to inactive low-balance members that may have given a false impression the members would lose their superannuation balance to the Australian Taxation Office.
Hostplus said that, while the letter could have been clearer, it was not misleading and that there was no evidence it had confused members with it.
“Counsel assisting has not explained how or why the letters might give that impression [of money being lost to the ATO],” the Hostplus response stated. “In Hostplus’s respectful submission, they do not.
“Stating that a member’s superannuation may be ‘transferred’ to the ATO does not mean (or imply) that the member would be unable to recover that superannuation from the ATO.”
Furthermore, the letter implied that on being transferred to the ATO, the funds would enjoy a return, Hostplus said, although it would perhaps be lower than the return at Hostplus.
Some members elected to remain with Hostplus following receipt of the letters, and a small portion (1 per cent) saw their account balances reduce to zero.
“As [Hostplus chief executive David Elia] explained, it is not uncommon for members to ‘park’ money in a Hostplus account solely for the purpose of taking advantage of the fund’s low-cost insurance,” the Hostplus submission stated.
Catholic Super’s conflict management
Catholic Super may have breached prudential standards, counsel assisting’s closing submission stated, by failing to have a conflict-management framework sufficient to prevent the emergence of conflicts of interest surrounding its multimillion-dollar dealings with Australian Family.
Australian Family was associated with the brother and wife of senior Catholic Super staff member Rob Clancy – a conflict Clancy did not disclose until May 2015, despite business dealings dating back five years.
It emerged during the hearing that Rob Clancy had discussed business dealings and passed confidential information to his brother Paul Clancy – the managing director of Australian Family. Catholic Super stated that he had “acted in a clandestine manner contrary to the structures that had been formulated”. The fund was also seeking restitution for personal expenses made on his corporate credit card, its submission stated.
In response to counsel assisting, Catholic Super stated that it had policies and procedures in place for managing conflicts of interest but they were not fully applied in the case of the Clancys. When the board was first advised of the conflict in 2015, the chief executive gave assurances to the board that it was being managed.
Instances where the conflict was managed contrary to these assurances happened without knowledge of the board, Catholic Super stated.
The fund terminated Rob Clancy on August 22, the Wednesday following the end of the superannuation hearings, and it has commissioned an independent review of its conflict-management processes.
There was no evidence to suggest the conflict resulted in an outcome that was contrary to the best interests of the beneficiaries of the fund, Catholic Super stated.
“Rather, it is submitted that the relevant relationship has, notwithstanding the conflict, been commercially advantageous for CSF, and thereby the beneficiaries, particularly in respect of CSF’s strategy to grow in the area of early-childhood education.”