Nick Bruining: ASIC puts superannuation funds on notice over shocking delays in death benefit payouts

A big rise in complaints about superannuation death benefit delays — first highlighted by Your Money late last year — has prompted a major investigation by the financial services watchdog. In some cases, death benefit claims were taking more than six months to process, with some members complaining that repeated written and verbal requests to the super fund for information and help were being ignored. Following the first phase of a review, Australian Securities and Investments Commission commissioner Simone Constant said the watchdog was now calling on fund trustees to urgently consider whether their arrangements for dealing with death benefit claims were “fit for purpose”. Death benefit payments are often enhanced by included life insurance cover. A modest superannuation balance of only a few thousand dollars can be boosted by hundreds of thousands of dollars when insurance benefits are included. ASIC’s action follows last year’s massive increase in complaints to the Australian Financial Complaints Authority. “Super complaints rose 32 per cent overall, but within this was a 136 per cent rise in complaints about claim delays, including payments in life insurance and total and permanent disability insurance claims,” authority chief executive David Locke said. As part of its review, ASIC probed the websites of 22 public offer super funds, which collectively manage more than two-thirds of the $2.6 trillion in public offer super schemes. It said one major fault already identified was the poor standard of information provided by funds to their members. “Work has focused on public website communications and resources about death benefit nominations and how to make a death benefit claim,” Ms Constant said. Super funds are bound by very strict rules on who a death benefit can be paid to. Those eligible to receive payouts are restricted to the deceased member’s dependents and interdependents. That might include partners and children but almost always doesn’t include siblings, parents or friends of the deceased. There is also confusion about how the money is divided between dependents in the absence of written instructions. In this case, the trustee of the super fund usually has absolute discretion about which dependent gets what. “Only a current, valid binding beneficiary nomination in place at the time of death will override the trustee’s discretion,” Ms Constant said. The binding beneficiary nomination is a form a member can complete that specifies where the money is to be paid. While individuals named must be dependents, a member can also nominate a “legal personal representative” as the beneficiary, which is a legal term for the executor of a will. In this case, the will might instruct the proceeds to be paid to non-dependents, which also has the advantage of not being counted as tax-assessable income. But while the forms might be available on many super fund websites, they lack important information that a member would need to properly complete the form. “Most beneficiary nomination forms, accessible from the websites we reviewed, did not include sufficient information to assist the member to understand how to make a nomination — 16 trustees of 22 omitted crucial details,” Ms Constant said. ASIC has also warned funds that failure to lift their game could land them in court. “Our recent enforcement actions demonstrate our commitment to holding the industry accountable for any actions or inactions that deliver poor outcomes for members,” the watchdog said. The second phase of the investigation will include a more detailed study of individual funds. “We are seeking detailed information from a selection of trustees to obtain a better understanding of the timeliness of claims, their processes and where improvements may need to be made,” ASIC said. Those selected may include funds identified by AFCA last year. These include AustralianSuper, HostPlus, Australian Retirement Trust and Rest, in addition to the former National Australia Bank-owned Nulis Nominees, which takes in MLC and Plum. Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association