The country’s largest super fund, AustralianSuper, was in breach of superannuation laws for almost nine years before it changed its business rules to address the issue of multiple member accounts, court documents show.
The $365 billion fund was on Friday directed by the Federal Court to pay $27 million in penalties after it was found to have failed to consolidate multiple member accounts, and failed to remediate members who were consequently charged multiple administration and insurance costs, and who missed out on investment earnings.
ASIC sued AustralianSuper in 2023 alleging the fund had effectively overcharged members by not automatically consolidating their accounts. ASIC and AustralianSuper jointly submitted to the court that penalties totalling $27 million would be appropriate. The penalties come on top of almost $70 million paid out as remediation to 90,700 affected members who were overcharged $24.7 million in administration fees, $10.1 million in insurance premiums, and missed out on $24.2 million of investment earnings.
In a statement on Friday, AustralianSuper said “a provision was made for an expected penalty in the 2023/24 financial year accounts, and member administration fees … have not been increased to cover it.”
‘Betrayed the trust’ of members
ASIC said on Friday that the case against AustralianSuper was the first it had brought in its capacity as a co-regulator with APRA. Commissioner Sarah Court said the fund had “betrayed the trust of its members and did not act in their best financial interests”, and the damage to members had been “exacerbated by a systemic failure to escalate and remediate the issue once it was identified”.
Super funds have been required since 1 July 2013 under section 108A of the Superannuation Industry (Supervision) Act to have business rules in place to identify and merge multiple member accounts, and to apply those rules at least once a year.
AustralianSuper didn’t establish those rules until mid-2022.
In her judgement, Justice Hespe said it was an agreed fact that “AustralianSuper was aware of s108A at the time that section came into force and was aware that it needed to amend its business rules to comply with that section”.
“AustralianSuper failed to make those amendments for nearly nine years,” Justice Hespe said.
“It failed to have systems in place to implement changes to rules as required by legislation. There were no formal processes or controls in place at AustralianSuper that made someone in the compliance or legal teams responsible for the review and/or approval of changes to the business rules to ensure that they met the relevant legislative requirements.
“The absence of such a process meant nobody was responsible for ensuring compliance with legislative requirements and resulted in no resources being dedicated to that task. The failure to implement changes to the business rules was the inevitable consequence of a failure to have systems and processes to identify the need for changes to be made.”
The court ruled that between 13 March 2019 and 20 June 2022, AustralianSuper failed to establish business rules which set out how to identify and merge multiple accounts of members; that between 13 March 2019 and 11 May 2023, it failed to promptly identify and merge multiple accounts, which its business rules would have required; and that between 13 March 2019 and 11 May 2023, it failed to promptly remediate those members.
Hints of greater problems
Court documents show that AustralianSuper was aware of the multiple accounts issue as far back as early 2016. In April 2018, a memo was provided to then-chief executive officer Ian Silk, Paul Schroder – then group executive product, brand and reputation, and now chief executive officer – and Rose Kerlin – then group executive membership and brand, and now chief member officer.
The memo, entitled “Current State – Duplicate Accounts” flagged at least 43,605 members with multiple accounts. A covering email said the fund needed to “to improve the system so we can track and report who has intended duplicate accounts”.
It went on: “Once we have improved our capacity to track and report on this, we need to run a campaign to reduce unintended duplicate accounts’”.
Schroder responded that “maybe the first step is to fix this appalling problem?” and, later, asked if the fund could “act unilaterally in favour of combining these accounts”. Schroder was advised that the fund believed member consent was required.
Later in April 2018, Silk, Schroder and Kerlin received a draft report for a project to reduce multiple accounts, the executive summary of which said, in part, that multiple accounts are “regressive and have the greatest impact on those who are least well off”. The next month, AustralianSuper flagged the identification and consolidation of multiple accounts as a priority.
There then followed a complex, bureaucratic and lengthy internal process to scope out the project and to recruit the right areas of the business to engage in it. Court documents paint a picture of an organisation unable to grasp the seriousness of the breach, or even to acknowledge that a breach had occurred, and scrambling to dedicate appropriate staff time and resources to addressing it.
‘Never again’
During this period, internal communications show that the fund believed, incorrectly, that it had appropriate business rules In place to deal with multiple accounts.
Well over a year after the issue had been nominated as a priority, in August 2019, two action plans were flagged as “significantly overdue”. Then, when the Covid-19 pandemic hit, the merged accounts project was placed on hold.
The issue continued to bounce around between different operational areas of the fund until the end of 2021, when it finally determined to lodge breach notices with ASIC and APRA. Yet It wasn’t until June 2022 that AustralianSuper amended its business rules to comply with s108A of the SIS Act.
In a statement on Friday AustralianSuper said that after it reported this issue to ASIC and APRA in December 2021 it then “informed impacted members, completed a comprehensive remediation program to compensate them, and cooperated at all stages with the regulators”.
“We found this mistake, we reported it, we apologised to impacted members, we compensated them, and we’ve improved our processes to prevent this happening again,” Schroder said in the statement.
“Multiple member accounts are a problem across our industry and for several years our process wasn’t comprehensive enough to meet our obligations to members. We’ve fixed that now and we continue to review and improve our services, so we provide members with the support and guidance they expect and deserve.”
