The Australian Securities and Investments Commission (ASIC) could launch enforcement action against super funds whose handling of death benefit claims falls short, ASIC commissioner in charge of superannuation Simone Constant has warned.
In an interview with Investment Magazine, Constant, who was appointed an ASIC commissioner last November, said the payment of death benefits was now considered a key area of focus for ASIC and the Australian Prudential Regulation Authority (APRA) following the sharp increase in complaints about the issue reported by the Australian Financial Complaints Authority (AFCA).
Constant says that “since the beginning of the year we have been communicating with [the funds] directly alongside APRA” over the issue of handling death benefit claims.
ASIC is currently gathering data from a survey of around 10 super funds with its conclusions to be contained in a report due for release before the end of the year.
“We’re looking at failures in member services in and around the processing and payments of (death benefit) claims and the impact on individuals,” Constant says.
“If we find there’s systemic failure within a super fund and the way their operations and services come together – there are breakpoints, and (the problem) is repeating and there has not been action by trustees – we will identify that in the report.”
“If it gives rise to the need for enforcement action, we will take enforcement action.
“We have not taken any enforcement action on the death benefit issue (to date), but it doesn’t mean that we won’t.”
‘Surprised and disappointed’
Constant says handling payment of death benefits is a key area as it affects people at a very vulnerable stage of their lives, including people who may be making preparations for their death or grieving spouse.
She says the mishandling of death benefit payments can cause significant harm and involve payments of significant sums of money.
Constant’s career has spanned both government and the private sector. She was with the NSW Department of Education and the NSW Treasury prior to becoming chief risk officer in the institutional and markets division of the Commonwealth Bank. She was appointed ASIC commissioner in November 2023, not long before ASIC’s review of death benefit payments began with a review of the websites of some 22 funds.
Constant says ASIC was surprised and disappointed with some of the sites at the poor standard of information around death benefits. A key issue is the disclosure and wording explaining to members the importance of having a binding death benefit nomination.
“This binding death benefit nomination has been at the heart of so many complaints about why it has been so hard for members to get death benefits paid,” she says.
“You would think that good member service delivery would mean that would be easy to find, including calling out the fact that it is needed and also needs to be refreshed every couple of years.
“All those things were lacking.”
Constant says ASIC found the websites difficult to navigate and particularly poor when it came to communicating with people who didn’t have English as their first language or who were Indigenous.
“We think it is an area which needs significant improvement,” she says.
Constant says the report to be released later in the year will give examples of how funds should inform members about binding death benefit nominations and other recommended practices.
“We will be calling out what good looks like and setting out our expectations,” she says.
Complaints to AFCA about delays in handling death benefits increased seven-fold between 2021 and 2023, alarming the Federal Government and the regulators.
Both regulators have already aired their concerns about the handling of death benefits in a joint regulator roundtable with super funds earlier this year.
Constant insists that there is no confusion in the roles of the different regulators when they both look at the same issue on superannuation, such as death benefit claims.
The two regulators are also targeting super funds over greenwashing and the retirement incomes covenant.
“They [APRA] focus on member outcomes under the legislation they administer,” Constant says.
“We [ASIC] focus on member services, particularly around communication with members and [whether funds are] dealing responsively with member claims and needs.”
Frequent communications
As the conduct regulator, ASIC’s focus is on instances where there are failures in the delivery of services to members; while APRA, as the prudential regulator, focuses on the business process of funds.
Constant says she talks regularly with her counterpart at APRA, Margaret Cole.
She says ASIC and APRA have two or three roundtables a year with super funds over a range of issues, with the notes from the meetings posted on their websites.
She says the two regulators look at issues of concern “where we have common ground and can work on together, albeit in our different streams”.
Constant says there are a number of forces behind the skyrocketing complaints around payment of death benefits by super funds in recent years.
These include the big increase in money going into super, as the compulsory superannuation guarantee has risen towards 12 per cent; and the increasing number of Australians moving into retirement.
“There are now six million people in the drawdown phase,” she says.
“Super funds have become quite good at accumulation but now they are increasingly having to…serve people with high needs.
“In accumulation phase, members don’t engage enough with their super funds.”
But as they approach retirement, their demands on their fund increase significantly.
ASIC is urging super fund members to “think like a customer”, and the funds themselves to start thinking of members as customers.
Proper handling of information around issues such as binding death benefit nominations and processing of death benefit claims, she says, “is about customer service”.
Constant says the string of mergers in the super fund sector, which have been encouraged by APRA, has also thrown up issues as the funds work to rationalise their back office and IT and administration systems.
“They have had to bring operations together,” she says.
“They have different systems, different ways of doing things, different customer bases.”
No confusions
Constant says the increasing number of complaints about super also reflects the fact that for many Australians these days superannuation is their second largest financial asset, and for some, their most important.
Constant rejects suggestions that having APRA and ASIC working together on similar issues is confusing for fund trustees.
“It would be confusing if we came in on the same issue but in different ways. But we are not,” she says.
“We speak as a collective voice when we are engaging in the roundtables.
“[The funds] can see Margaret and I and our teams alongside each other giving a consistent message in terms of our expectations.
“We are clearly focused on our two different areas of lead responsibility. APRA focuses on the legislation and the principles-based things like how the business plan captures the operational improvements.
“There is an annual outcomes assessment which is published in terms of the business plan and how the member outcomes are addressed.
“On our side, we are thinking about end-to-end service delivery- the expectations in terms of legislation and meeting service commitments we have in our guidance-and the break points of real failure and the potential for harm.”
Constant says ASIC has an array of “tools” it can use to push funds into lifting their game around death benefit payments.
“We are in the middle of our data gathering and our review,” she says.
“We’ll be putting out a report towards the end of the year. It will call out if there has been good practice or if there’s been improvement. If we find there are some who fall short, then we will be bringing forth enforcement action.”
Constant said there could be other “compliance outcomes” short of court action.
“It might generate us sitting down with the fund and understanding the conditions around remediation,” she says.
“We think it is an area which needs significant improvement.”
Constant says she does not know if things have improved since both regulators started to focus on the issue.
She says there are indications that there are more complaints when member services are outsourced but is careful about making any definitive statements at this stage.
In any case, she says, whether administration is outsourced or not the funds are still responsible.
“It doesn’t really matter how super fund trustees and executives have arranged things in the middle, we will hold them accountable, and we don’t care if they get it (fund administration) done in Australia or overseas,” she says,
“They have that accountability to meet member standards. That is the key message.”
