The Albanese government has launched a pre-election crackdown on poor member services in the superannuation sector, especially delays in processing death benefits and insurance claims, as it looks to introduce new “mandatory and enforceable” industry standards.
In a joint media statement on Tuesday, Treasurer Jim Chalmers and Minister for Financial Services Stephen Jones said they will soon release a new set of member service standards for public consultation.
“The Government is ensuring that the same high standards Australians expect in investment performance also apply to member service,” the statement said.
“While most funds offer services that meet or often surpass community expectations, there have been some areas where some funds have fallen short.
“Better service is especially important during sensitive and vulnerable moments in members’ lives. Super funds have a responsibility to support members or their beneficiaries during these times, not add to their stress.”
The standards will initially focus on uplifting services in critical areas of superannuation, including the timely handling of death benefits, “efficient processing” of group insurance claims, and accessible member communications.
“All large APRA-regulated superannuation funds” are on the hook to comply with the new standards, but the specific size has not been defined.
Brewing problems
The clampdown came after the trustee of major profit-to-member super fund Cbus was sued by ASIC last November for alleged repeated failures in processing insurance claims. The market regulator claimed that, for a period of more than two years, Cbus failed to resolve over half of TPD and death benefits within 365 days.
Cbus estimated there was a $20 million financial loss to members and claimants.
Less than a month later, the nation’s biggest fund AustralianSuper said it has started a compensation program to proactively pay back beneficiaries whose claims were delayed. Claims that failed to be resolved within the fund’s internal target handling time of four months are entitled to payments.
The program covers 7000 people and $4.2 million in compensation.
It also follows research conducted by Conexus Financial, publisher of Investment Magazine, in partnership with CoreData which suggested member experience is one area where a number of funds could do significantly better.
In early 2023, the research polled 6,900 members over the age of 45 and found lacklustre levels of satisfaction with customer service. Retail funds achieved an overall index score of just 57.1 out of 100, while industry funds achieved a score of 52.1 – a near fail.
Service quality has also become increasingly crucial because funds have been less and less able to differentiate purely from a performance perspective in the past five years.
Stricter timeline
Critics of existing superannuation insurance arrangements – most notably Senator Andrew Bragg, who has described group life products as “junk insurance” – have long called for a hard deadline on processing time. Bragg previously suggested the Coalition would consider setting policies that dictate mandatory timeframe for death benefits and TPD claims in super.
It is yet unclear whether the Labor government’s standards will introduce similar timing requirements, but Super Consumers Australia CEO Xavier O’Halloran said the organisation will push for it during consultation.
The consumer advocacy organisation previously called Cbus’ delay in processing claims “out of whack” with its marketing materials that boasted tailored insurance coverage for its members in high-risk professions.
“This announcement is a massive win for Australian consumers. Super funds have been taking far too long to do basics like pick up the phone and pay people the money they are owed,” O’Halloran said in a media statement on Tuesday.
“If done right, these standards will strengthen the super system and give people confidence that their super is there for them when they need it most.
“Mandatory standards plus public accountability are the only way to stop the distressing experiences we hear about so often.”
Industry association ASFA said the sector welcomes the scrutiny and that funds have “acted to improve their internal processes”.
“The work to meet these standards is ongoing, and one the sector is committed to in achieving its goal of continuous uplift in member outcomes,” said CEO Mary Delahunty.