ASIC slams slow super funds

Having active and effective regulators is vital in any financial system, so we should all welcome ASIC’s excellent report on Australia’s superannuation system.

While the report made for sobering and sometimes very upsetting reading as it outlined some heartbreaking issues that families faced in trying to access a deceased person’s superannuation, it is much better to have this information now and to continue to put pressure on the funds to improve their performance.

While ASIC chair Joe Longo did not look at all funds and how well they processed death benefits and insurance payments, he examined enough very large funds to give a broad overview of where the superannuation system is failing.

It exposed a superannuation system that is focused on producing good returns for members as a way of continuing to grow, but in the process has lost sight of some of the basic needs of those very same members and their families.

Big super will need to do much better

Undoubtedly all superannuation funds that want to continue doing business and growing in Australia will take note of ASIC’s findings and will be taking immediate action to improve their processing of death benefits.

At the very least these stories of people waiting up to four years for a claim to be met should never happen again but what also should happen is that all super funds start to actively monitor the timeliness of their claims as a key indicator of how they are performing.

It doesn’t really matter whether those claims are settled within the fund or by a third party – although some funds seemed to think outsourcing was a reasonable excuse.

The real issue is whether fund managers even have a clear picture of how well their claims are being processed.

Settling claims an important part of super’s business

Settling death benefit claims and also processing death and disability insurance payments is a central function of all superannuation funds and as Joe Longo notes there are no excuses for why managers don’t have a good view of how they are performing in this area.

Of course, death benefits can be complex and super funds have a duty to make sure the money goes to the right person but there is no excuse for delaying payments unnecessarily once the appropriate documentation has been provided.

This is particularly the case when those claiming are bereaved and need to be treated with the greatest of care and respect.

Claims will keep increasing

Hopefully ASIC’s report will lead to very extensive improvements and consistent internal monitoring and oversight by ASIC given that the number of death benefit claims processed every year will continue to increase over time as the ageing baby boomer population bulge approaches full life expectancy.

It is quite damning that none of the 10 funds examined by ASIC which represent 38% of the sector achieved satisfactory results in paying death benefits, although there was a clear trend showing that in house processing produced faster payments.

Internal management helps

Those funds that handled their own claims internally such as Avantos, UniSuper and NM Super (part of AMP) had the quickest average claim processing time, while outsourced funds such as REST, Commonwealth Superannuation Corporation and Queensland’s Brighter Super were the slowest.

It is even more damning that two funds that were initially in the report – industry giants AustralianSuper and Cbus – were stripped out of the report so that they could be hit with more serious enforceable action.

It is interesting also that there does not appear to be a link between higher fees and better service, with some of the better performing funds also featuring lower administration charges.

It is also interesting to note that external life insurers were not to blame for the issues, with the average life insurance claim processed in 24 days.

The vast bulk of death benefit claims had no insurance involvement and this is where the funds weaknesses were most pronounced.

As Joe Longo put it, this report should be a “line in the sand” and the response by chief executives will prove if the super industry really does care for members as much as they claim they do.