MY EXPERIENCES AS A MEMBER OF THE SUPERANNUATION COMPLAINTS TRIBUNAL
Noel Davis, Barrister
Background
After 13 years of making decisions on superannuation disputes as a member of the Superannuation Complaints Tribunal, I have retired from that role. The tribunal deals with complaints by members of superannuation funds (other than self managed funds) about decisions of trustees and insurers who insure members.
I have practised in superannuation law for 40 years, including as a partner of large legal firms and as a barrister. I am the ongoing author of the standard text on superannuation law and am a former director of one of the large superannuation administrators, of a public trustee which acted as a trustee of a large number of superannuation funds and of a public financial planning company.
Problems identified by the tribunal ignored by trustees
Many decisions of the tribunal expose shortcomings in the way in which the superannuation fund, which is the subject of the member’s complaint, is being administered. Some trustees take note of these shortcomings and change their practices. However, my experience is that, in some other funds, the decisions and the comments in them are often ignored by the directors of the trustee. I am also aware that, in some funds, the directors are not told of decisions of the tribunal that relate to that fund. Consequently, the same problems continue to crop in those funds. Some of the largest funds, including government funds, are often the culprits. The result is that the directors of the trustees of those funds are not properly fulfilling their functions.
Poor standard of submissions to the tribunal
Another frequent problem with cases in the tribunal is that the submissions to the tribunal on behalf of trustees and insurers are often made by junior staff who are not experienced enough to identify what all the issues are. If issues are not identified by the complainants, who are usually not legally represented, it is necessary for the tribunal member hearing the case to determine what all the relevant matters are. The extent to which that is achieved is sometimes dependent on how experienced that member is in superannuation and in trust law.
Submissions to the tribunal need to be made by people who are experienced enough to identify the issues, including any legal issues, not by junior staff.
Superannuation arrangements in financial institutions
For superannuation funds conducted by the financial institutions, the making of submissions is often confused in that submissions by the trustee are frequently made by a company in the group of companies and not by the trustee itself. That is a consequence of these vey confusing corporate arrangements where membership of the superannuation fund and of life and disability insurance to go with it is sold by the financial institution either directly to a person or through an employer’s superannuation arrangement. The form of investment is, generally, in a life insurance group policy issued by the related insurer. The person is then placed in one of the institution’s funds. It is apparent from submissions to the tribunal that it is frequently the case that even employees of the financial institution are confused about what the role is of each company in these convoluted arrangements. The members are of course even more confused by them.
Some of the directors of the trustee in these arrangements are invariably also employees of the financial institution. They, of course, have a hopeless conflict of interest because of their duties to the employer and their duties as directors of the trustee in ensuring that the related investments and insurance arrangements are the best that can be done for the members. The so called independent directors of these trustees are sometimes former employees of the financial institution or are advisers or former advisers to the trustee. They are not, therefore, independent.
It is not generally understood by those involved that there is any conflict of interest in these situations. I recall an instance where I queried the apparent conflict of interest in employees of a life insurance company participating, as directors, in a decision of the trustee that the insurer was not liable to pay a disability benefit, and the submission of the trustee to the tribunal was that there was no conflict.
Because of the tied investment and insurance arrangements, the directors of these trustees are, generally, unable to properly carry out their obligations under the Superannuation Industry Supervision legislation and should, therefore, resign if they want to avoid the consequences of not being able to properly perform their duties as trustee directors.
These arrangements are desperately in need of reform.
Disability claims
A frequent form of complaint to the tribunal is that the trustee and its insurer have refused to pay a disability claim made by a member of the fund. That applies in both industry funds and retail funds operated by financial institutions.
Frequently the complainant can no longer work and is, therefore, without income except for social security payments.
However, in disputed claims, it is often the case that there are long delays by trustees and insurers in making decisions, which prolongs the period in which the member is without income.
It is not unusual for it to take 3 or 4 years or more before the tribunal deals with the member’s complaint because of long delays in the insurer’s and trustee’s decision making and delays in the tribunal.
In allowing insurers to take so long to make a decision after asking for more and more medical evidence, trustees are failing in their duty to act in the best interests of the members making disability claims.
The tribunal does not have the same power that a court has to award damages against trustees and insurers who delay making decisions. It cannot, therefore, do what the New South Wales Supreme Court did in one case of an extensive delay, where it ordered a trustee to pay damages of $290,000, in addition to the disability benefit payable, because of a delay of more that 3 years in making a decision on the disability claim.
In fairness to trustees and insurers, it also needs to be said that decisions on disability claims can be difficult to make if there is conflicting medical evidence or conflicting evidence about a person’s ability to continue working. Tribunal members face the same difficulty.
Delays in the tribunal
In addition to trustees and insurers being tardy in making decisions, there have also been long delays in the tribunal hearing cases of all types. Those delays are, largely, attributable to ASIC (which is responsible for funding the tribunal) having seriously underfunded the tribunal over recent years which has resulted in delays of sometimes 2 to 3 years in the tribunal hearing cases from when a complaint was made to the tribunal. That is additional to any delays in decision making by trustees and insurers.
The tribunal is to be replaced by the Australian Financial Complaints Authority (AFCA) with effect from 1 November this year, except for complaints that have already been lodged with the tribunal before that date.
AFCA is not likely to suffer from the same underfunding and delays that have affected the work of the tribunal, because AFCA will receive payments directly from superannuation funds of amounts that AFCA determines.
Commissions paid to financial planners
In retail superannuation funds, it sometimes the case that fees are deducted from members’ accounts to pay commissions to financial planners.
In my final decision as a member of the tribunal, I directed a trustee to refund to a member fees of 5% that had been debited to each contribution and lump sum rollover she made where the 5% fees were paid as commissions to financial planners who the member had never heard of.
Because of evidence that has been given in the financial services royal commission subsequent to my decision, in relation to commissions paid to financial planners who provided no services, it is likely that there will be more of those types of complaints to the tribunal and to AFCA.
Because of the legal issues involved, they are difficult cases and will test the abilities of the tribunal and AFCA to determine the outcome.
4 October 2018
After 13 years of making decisions on superannuation disputes as a member of the Superannuation Complaints Tribunal, I have retired from that role. The tribunal deals with complaints by members of superannuation funds (other than self managed funds) about decisions of trustees and insurers who insure members.
I have practised in superannuation law for 40 years, including as a partner of large legal firms and as a barrister. I am the ongoing author of the standard text on superannuation law and am a former director of one of the large superannuation administrators, of a public trustee which acted as a trustee of a large number of superannuation funds and of a public financial planning company.
Problems identified by the tribunal ignored by trustees
Many decisions of the tribunal expose shortcomings in the way in which the superannuation fund, which is the subject of the member’s complaint, is being administered. Some trustees take note of these shortcomings and change their practices. However, my experience is that, in some other funds, the decisions and the comments in them are often ignored by the directors of the trustee. I am also aware that, in some funds, the directors are not told of decisions of the tribunal that relate to that fund. Consequently, the same problems continue to crop in those funds. Some of the largest funds, including government funds, are often the culprits. The result is that the directors of the trustees of those funds are not properly fulfilling their functions.
Poor standard of submissions to the tribunal
Another frequent problem with cases in the tribunal is that the submissions to the tribunal on behalf of trustees and insurers are often made by junior staff who are not experienced enough to identify what all the issues are. If issues are not identified by the complainants, who are usually not legally represented, it is necessary for the tribunal member hearing the case to determine what all the relevant matters are. The extent to which that is achieved is sometimes dependent on how experienced that member is in superannuation and in trust law.
Submissions to the tribunal need to be made by people who are experienced enough to identify the issues, including any legal issues, not by junior staff.
Superannuation arrangements in financial institutions
For superannuation funds conducted by the financial institutions, the making of submissions is often confused in that submissions by the trustee are frequently made by a company in the group of companies and not by the trustee itself. That is a consequence of these vey confusing corporate arrangements where membership of the superannuation fund and of life and disability insurance to go with it is sold by the financial institution either directly to a person or through an employer’s superannuation arrangement. The form of investment is, generally, in a life insurance group policy issued by the related insurer. The person is then placed in one of the institution’s funds. It is apparent from submissions to the tribunal that it is frequently the case that even employees of the financial institution are confused about what the role is of each company in these convoluted arrangements. The members are of course even more confused by them.
Some of the directors of the trustee in these arrangements are invariably also employees of the financial institution. They, of course, have a hopeless conflict of interest because of their duties to the employer and their duties as directors of the trustee in ensuring that the related investments and insurance arrangements are the best that can be done for the members. The so called independent directors of these trustees are sometimes former employees of the financial institution or are advisers or former advisers to the trustee. They are not, therefore, independent.
It is not generally understood by those involved that there is any conflict of interest in these situations. I recall an instance where I queried the apparent conflict of interest in employees of a life insurance company participating, as directors, in a decision of the trustee that the insurer was not liable to pay a disability benefit, and the submission of the trustee to the tribunal was that there was no conflict.
Because of the tied investment and insurance arrangements, the directors of these trustees are, generally, unable to properly carry out their obligations under the Superannuation Industry Supervision legislation and should, therefore, resign if they want to avoid the consequences of not being able to properly perform their duties as trustee directors.
These arrangements are desperately in need of reform.
Disability claims
A frequent form of complaint to the tribunal is that the trustee and its insurer have refused to pay a disability claim made by a member of the fund. That applies in both industry funds and retail funds operated by financial institutions.
Frequently the complainant can no longer work and is, therefore, without income except for social security payments.
However, in disputed claims, it is often the case that there are long delays by trustees and insurers in making decisions, which prolongs the period in which the member is without income.
It is not unusual for it to take 3 or 4 years or more before the tribunal deals with the member’s complaint because of long delays in the insurer’s and trustee’s decision making and delays in the tribunal.
In allowing insurers to take so long to make a decision after asking for more and more medical evidence, trustees are failing in their duty to act in the best interests of the members making disability claims.
The tribunal does not have the same power that a court has to award damages against trustees and insurers who delay making decisions. It cannot, therefore, do what the New South Wales Supreme Court did in one case of an extensive delay, where it ordered a trustee to pay damages of $290,000, in addition to the disability benefit payable, because of a delay of more that 3 years in making a decision on the disability claim.
In fairness to trustees and insurers, it also needs to be said that decisions on disability claims can be difficult to make if there is conflicting medical evidence or conflicting evidence about a person’s ability to continue working. Tribunal members face the same difficulty.
Delays in the tribunal
In addition to trustees and insurers being tardy in making decisions, there have also been long delays in the tribunal hearing cases of all types. Those delays are, largely, attributable to ASIC (which is responsible for funding the tribunal) having seriously underfunded the tribunal over recent years which has resulted in delays of sometimes 2 to 3 years in the tribunal hearing cases from when a complaint was made to the tribunal. That is additional to any delays in decision making by trustees and insurers.
The tribunal is to be replaced by the Australian Financial Complaints Authority (AFCA) with effect from 1 November this year, except for complaints that have already been lodged with the tribunal before that date.
AFCA is not likely to suffer from the same underfunding and delays that have affected the work of the tribunal, because AFCA will receive payments directly from superannuation funds of amounts that AFCA determines.
Commissions paid to financial planners
In retail superannuation funds, it sometimes the case that fees are deducted from members’ accounts to pay commissions to financial planners.
In my final decision as a member of the tribunal, I directed a trustee to refund to a member fees of 5% that had been debited to each contribution and lump sum rollover she made where the 5% fees were paid as commissions to financial planners who the member had never heard of.
Because of evidence that has been given in the financial services royal commission subsequent to my decision, in relation to commissions paid to financial planners who provided no services, it is likely that there will be more of those types of complaints to the tribunal and to AFCA.
Because of the legal issues involved, they are difficult cases and will test the abilities of the tribunal and AFCA to determine the outcome.
4 October 2018