Superannuation funds are being questioned about why there has been a growing number of customers experiencing lengthy delays in claims handling over the past year.
Complaints to the ombudsman about superannuation were up by a third to 6,957 in the financial year ended June 30, 2023.
In particular, complaints about delays in releasing super to a surviving spouse or other beneficiaries has more than tripled from 72 to 267 complaints.
There is no stipulated timeline around payments from super funds in the payment of a death benefit. Meanwhile, a new version of the Life Insurance Code of Practice came into effect on 1 July, 2023. The voluntary code means life insurers (including those that provide disability insurance through super) are agreeing to speed up the claims process.
But voluntary codes clearly aren’t working, with a public outcry from complainants in mainstream media outlets in recent weeks leading to questions from the broader financial industry about what’s causing the delays to understand what’s being done to improve response times and how subsequent reputational damage can be avoided.
Australians have revealed delays of a year or even longer to receive death benefits and insurance they are entitled to after the death of a loved one in media stories.
Aware Super blamed data migration issues as it transitioned from using a third party contractor for its delays in one media story, while CBUS was also forced into a public apology and to quickly resolve complaints after a customer spoke to the ABC. In some cases, lawyers have been hired to extract entitlements from super funds.
But Super Consumers Australia director Xavier O’Halloran says the delays are systematic issues that attract a string of consumer complaints.
A report into member experience released by the Australian Securities and Investments Commission (ASIC) earlier this year had already highlighted the need for super funds to reduce frictions in the claims handling process that makes it unnecessarily stressful or onerous for members and beneficiaries who may already be impacted by sickness, injury or the death of a family member.
And while the report points out that trustees have taken steps to enhance the claims handling process, the report also pointed out that the superannuation industry needs to do more given that the number of disputes relating to insurance in super claims remains relatively high.
Superannuation Ombudsman Heather Gray admits that there are no timeframes in the law for payment of a death benefit, other than it must be paid as soon as is practicable.
Three months is reasonable
Gray has publicly admitted that resourcing, administrative changes or the complexity of claims was often the issue when there are complaints about delays.
“Death benefit claims can also vary in complexity. In a straightforward case, we suggest three months is a reasonable period of time. However, in a complex case, we would expect this to take longer,” Gray says.
“When we see issues, we actively engage with trustees with the aim of seeing the fund address the issue quickly and meaningfully for its members. We have been talking to trustees about the issues we are seeing in claim delay, including claims for death benefits.
We have urged them to closely track the progress of claims and to monitor outcomes for members.”
Gray continued: “We would like to see all trustees review the way they deal with claims for death benefits and to see whether there are opportunities to streamline their process to make sure benefits are paid more quickly than they often are at the moment.
“Where there is an external administrator involved, we expect trustees to enforce timeframes set out in the administration contract, and to keep a close eye on the steps the administrator is taking to make sure it is only asking for necessary information and is processing documents and submissions promptly,” Gray says.
Superannuation funds continue to work with administrators and insurers to improve their claims handling processes, ASFA deputy CEO Glen McCrea says.
However, it’s important to acknowledge that of the approximately 190,000 claims made through superannuation, less than one per cent resulted in complaints being lodged and 91 per cent of death benefit claims are paid within two months of being lodged, and 98 per cent within six months, McCrea says.
“One factor behind delays in claims is where the late member did not have a binding nomination on their account. Without a binding nomination, the superannuation fund needs to let the potential beneficiaries know how they propose to pay the death benefit, the potential beneficiaries will then have 28 days to accept the decision or lodge an objection, which could extend the payment time by several months.”
The number of potential beneficiaries can be quite broad, and the process of identifying the potential beneficiaries and determining the allocation of the payment can be complex, particularly where there are blended families, children and ex-spouses involved, he says.
A push to ensure that funds are collecting a valid binding nomination on the late member’s super account would speed up the process as super funds are required by law to pay the death benefit to the nominated beneficiaries, McCrea adds.