Superannuation funds will need to devote more resources to handling complaints and speeding up the processing of death benefits and insurance claims – or face the prospect of more punitive action from regulators.
Previously unpublished data supplied to Investment Magazine by the Australian Financial Complaints Authority (AFCA) shows that complaints about superannuation funds have continued to rise in the new financial year with a “massive increase” in delays in handling claims for death benefits, and insurance payouts.
“The number of complaints to AFCA about superannuation continues to rise,” AFCA’s senior ombudsman for superannuation, Anne Maree Howley, tells Investment Magazine.
“The data shows there was a 32 per cent increase in the 12 months to July this year, and complaints have been rising over the past four months as well.”
She says AFCA was “particularly concerned about delays in claim handling and delays in relation to death benefits.”
“Access to this money is vital for people who have lost a loved one and delays are very distressing.”
Howley says super fund trustees needed to be more proactive in handling issues which had led to complaints.
“The increase in complaints to AFCA is worrying and shows super fund trustees need to do more to reverse the trend,” she says.
“Firms particularly need to do more to address the delays in claim handling and delays in relation to death benefits. More needs to be done to ensure they employ enough staff with the right skills to deal with claim handling in a timely and effective manner.”
AusSuper, TelstraSuper actions
AFCA has a legal responsibility under the Corporations Act to alert regulatory authorities, such as ASIC, to cases where it sees systemic problems with a super fund.
The continued sharp rise in complaints about the superannuation sector to ACFA and warnings by ASIC and Minister for Financial Services Stephen Jones, that super funds are on notice to lift their name, has laid the groundwork for more actions against particular funds.
It also comes amid research from Conexus Financial (publisher of Investment Magazine) and CoreData showing many of the largest funds ranked poorly for retirement preparedness from the perspective of thousands of surveyed members.
ASIC has recently targeted the largest fund, the $300 billion AustralianSuper, for not moving fast enough in consolidating member accounts, and taken action against the $26 billion TelstraSuper for not responding fast enough to member complaints.
AFCA warns that the increase in complaints against super funds is indicative of problems which have been developing for some time.
“The current issues with super have probably been getting worse for some time due to the fact that complaints are made to AFCA after the complainant has already tried and failed with their fund,” Howley says.
She says the fact that the insurance company involved may be a cause of the delays in processing a claim was not an acceptable excuse for super fund trustees.
“Trustees can, and must, do more to maintain oversight of the insurer,” she says.
Her comments make it clear that super funds will have to step up their oversight of how insurance claims such as death benefits or total and permanent disability and income protection are processed.
The latest figures for the first four months of the financial year show a continuation of the trend in the last financial year which promoted warnings from the minister.
Insurers and members
A study of data from AFCA shows two distinct areas of concern: complaints handling involving third parties – mainly insurance companies – and complaints about members’ dealing directly with funds on issues such as delays with rollovers and withdrawals, failure to consolidate duplicate accounts, errors in implementing investment switches, difficulties in accessing online services and calculations of fees and charges.
Both areas are seeing increases in complaints which funds will need to attend to or risk action from ASIC.
“There has been a massive increase in delays in claims handling,” an AFCA spokesperson says.
“Complaints about delays in claim handling have spiked.”
AFCA says complaints about delays in claims handling more than doubled in the past financial year to 1,738- up by 136 per cent over the year.
145 to 173 a month
Data provided to Investment Magazine for the four months of the financial year to the end of October showed complaints in this area have risen from 145 a month during the last financial year to 173 a month between 1 July and 31 October this year.
Complaints about delay in relation to death benefits, which more than tripled to 257 in the past financial year, are continuing to rise.
The latest figures show that there are now an average of 29 complaints about this issue this financial year, up from 21 a month in the last financial year.
Complaints about delays in relation to death benefits now represent nearly 4 per cent of complaints about superannuation in the first four months of this financial year, up from about 1 per cent three years ago.
Complaints about the distribution of death benefits have risen from 22 per month last financial year to 32 complaints a month in the first four months of this financial year – a rise of 41 per cent.
The AFCA data makes it clear that funds will have to invest significantly more money in staffing for complaints handling and inquiries from their members.
Complaints around service quality (which totalled 767 in 2022-23) have risen by 20 per cent in the first four months of the financial year – from 64 a month to 77 a month.
Complaints about administrative errors with accounts (which reached 709 in 2022-23), have shown a 29 per cent rise this financial year – from 59 a month to 76 a month.
Complaints about incorrect fees and costs (which totalled 397 last financial year), have risen by 10 per cent this financial year, up from 33 a month to 36 a month.
Complaints against funds for failure to follow instructions (which reached 337 last financial year), have seen a 12 per cent increase in their monthly average from 28 to 32.
The main products where complaints are increasing are:
- Administration of accounts with a total of 4,369 complaints, up 45 per cent from 3,009 in 2021–22. From July 1 to 31 October – there was a 24 per cent increase in the monthly average (from 364 to 450)
- Death benefits with 599 complaints last financial year, up 31 per cent from 457. There were 257 complaints about death benefits from 1 July to October 3. From July 1 to 31 October – there was a 29 per cent increase in monthly average (from 50 to 64)
- Terminal Illness with 37 complaints, up 6 per cent from 35. From July 1 to 31 October – there was a 62 per cent increase in monthly average (from 3 to 5).
AFCA data shows that the complaints by age of members have remained reasonably steady over the years, with some 70 per cent of complaints coming from members over 40.
The bulk of complaints – some 40 per cent of the total – come from people between 40 and 59.
That figure shows complaints against funds will continue to rise as the average age of super fund members increases- requiring the funds to spend more resources on handling consumer complaints and queries.
Super fund observers point out that it is inevitable that the sector will attract more complaints as the member population ages – with more approaching retirement as well as making insurance claims.
They point out that as super balances are rising, members have more of their financial assets at stake and pay more attention to them.
As one long-time industry observer tells Investment Magazine, the increasing member engagement as they get older and have more at stake, can be a “double edge sword” for the industry funds which have traditionally prided themselves on their low-cost operating model.
The situation is best highlighted by the new spotlight being put on industry giant AustralianSuper which has been embarrassed by the attention to the amount of complaints against it.
The fund had a total of 1,755 complaints against it registered with AFCA last financial year- several times more than the next ranking Hostplus with 493 complaints and the second-ranking Australian Retirement Trust with 404 complaints lodged.
While AustralianSuper has the largest membership, with more than 3.2 million Australians, its complaints per member is significantly higher than other funds.
Second-ranking ART, which has assets of some $260 billion, has 2.3 million members. Its rate of complaints per member is less than half that of AustralianSuper, which is now stepping up its complaints-handling staff and investing in more technology to handle claims.
Jeremy Cooper, chair of the Conexus Institute* and former deputy commissioner at ASIC, said the increase in complaints is proving a particular challenge for industry super fund sector which has had its origins in a low-cost business model more akin to wholesale trade.
But he said the superannuation was changing from being a largely wholesale business – an arrangement, between a fund and an employer – to a retail business with members now demanding more information and service.
“In the not-for-profit sector, super was a low-cost ‘wholesale’ product for a long time, because it’s the employer who pays all the superannuation guarantee,” he said.
“Many members only ever had a loose relationship with their fund,” he said.
“In years gone by, some funds had to pinch themselves to remember that employers weren’t their first priority, but in fact the members were.”
“But, in recent years this has changed quite dramatically.
“Super is now more of a ‘retail’ business, with a customer at the other end of the phone or wanting to chat online,” he said.
He said this was because superannuation balances were larger, the rules around superannuation were becoming more complex, members seeing constant brand marketing from other funds and now have 11 per cent of their wages going into super.
“The biggest reason though is that more people are either in the retirement phase or are wanting to know what to do when they retire,” he said.
He said retail super funds tended to have a “better track record in serving customers largely because of their origin and business models.”
“They were often created by large, demutualised insurers or banks that had their own capital to spend on servicing customers.
“The relationship between a retail fund and the member is nearly always triangulated with an adviser.
“The adviser can be the first port of call and has an interest in seeing the member’s needs or queries looked after.”
In short, after 30 years of untrammelled growth, industry super funds are under new pressure to rethink their traditional low-cost operating model as their loyal members now demand significantly more service- and the regulators are prepared to wield a big stick.
*The Conexus Institute is philanthropically funded by Conexus Financial, publisher of this website.