The Government should proceed cautiously in its establishment of the Australian Financial Complains Authority lest its changes simply make the situation worse, according to Eva Scheerlinck.
One of the many challenges involved in being a trustee director of a super fund is making decisions about death benefit claims that have been elevated to board members for decision.
With many claims involving significant sums of money, trustee decisions about who qualifies as a beneficiary and who doesn’t can have life changing impacts on individuals or family members at a time when they may be at their most vulnerable. And with the changing nature of modern households and relationships, these decisions are becoming increasingly complex.
For example, determining who qualifies as a dependent or whether a relationship of interdependency exists is not always a straightforward exercise.
Where several claimants are involved or emotions are running high, it is easy to see how disputes can arise, irrespective of their legitimacy.
This helps explain why disputes about death benefits are among the most common complaints made against super funds and why the number of complaints is expected to increase as super balances grow over the next decade.
All of which makes it critically important that complaints concerning death benefits and other insurance matters in superannuation are handled by a dispute resolution body with the appropriate powers to ensure a fair outcome for all parties involved.
Currently, this body is the Superannuation Complaints Tribunal (SCT), but this is set to change with the Federal Government’s announcement earlier this year of its intention to roll the SCT – along with the Financial Ombudsman Service (FOS) and the Credit and Investments Ombudsman (CIO) – into a one-stop shop for financial complaints – the Australian Financial Complaints Authority (AFCA). The proposed start date for AFCA is 1 July 2018, with the SCT having two years from this date to transition into the new body.
One of the reasons for the Government’s decision to combine the dispute resolution bodies is that complaints before the SCT can face significant delays. However, it is well recognised that for the most part, these delays are a consequence of chronic underfunding and not a deficiency in the operation of the tribunal. Moreover, there was no economic modelling or quantitative work that assessed the pros and cons of keeping the three existing complaints schemes versus consolidating the three bodies into one entity.
While AIST can see some merit in a one-stop-shop for financial complaints, we have a number of concerns about the way super complaints would be handled under the new body. And as the months fly by and we get closer to AFCA’s start date next year, we are increasingly concerned that the super industry is being relegated to a bit player in the set up process.
Since the Government’s announcement in May to establish AFCA, legislation has been put together with limited industry consultation. In an unusual move, the legislation was introduced into the Senate rather than the more typical introductory route through the House of Representatives. The bill was immediately referred to the Senate Economics Legislation Committee, which conducted a hearing in early October. While the purpose of the hearing was to examine any issues associated with measures outlined in the bill, representatives from the super industry were not provided with the opportunity to appear before it.
For superannuation, the move to a new complaints body is the biggest reform to external disputes resolution since the SCT was established over 20 years ago.
Superannuation cannot be an afterthought in this reform process.
The Australian Institute of Superannuation Trustees (AIST) believes it is in the best interests of both fund members and superannuation funds if the current strengths and protections of the SCT are retained in any new EDR body. As it stands now, there are holes in the legislation that would result in some funds members or potential beneficiaries being worse off.
Under the proposed AFCA model, complainants will not be able to appeal decisions to a wholly independent external body, other than determinations that have been made by AFCA. Currently, a complainant at the SCT can appeal a decision or conduct of the tribunal to the
Federal Court under the Administrative Decisions (Judicial Review) Act 1977. For example, a complainant can appeal if they do not agree with the tribunal finding that a complaint is out of jurisdiction.
AIST is also concerned about the handling of the backlog of 1,600 open complaints currently before the SCT.
Providing evidence at the October Senate hearing, SCT chair, Ms Helen Davis, estimated that the SCT would need additional funding to the tune of about $11.7 million to close complaints by 2022, assuming all new complaints go to AFCA. This is an additional two years on the proposed SCT closure date.
Another important issue is the composition of the AFCA board. AIST believes it is important to have balanced representation from the sectors that will rely on the scheme, such as the profit-to-member superannuation sector.
Then there is the issue of complainants who take up the option (made clear in the explanatory memorandum of the bill) to transfer a complaint from the SCT to ACFA. It’s unclear how this might work if only one party to a complex multi-party complaint wants to transfer.
The importance of having a robust external dispute resolution body for the finance sector was highlighted by the recent Ramsay and Coleman inquiries that sought to consider the effectiveness of the existing framework and determine whether a change is necessary. The Ramsay review panel ultimately recommended that the SCT be amalgamated with the other financial complaint bodies. While the panel comprised of a number of highly skilled experts it did not contain any superannuation industry expertise.
In establishing this new complaints body, the concerns of the super industry must be given due consideration. Superannuation, after all, is very different to other financial services.
In an environment where Australians are compelled by legislation to contribute a substantial percentage of their income into superannuation accounts and decisions relating to those accounts have potentially life changing impacts, the importance of a robust, transparent, responsive and fair external dispute resolution body is paramount. It follows that an appropriately skilled and effectively constituted dispute resolution body should support a world leading compulsory superannuation system.
Eva Scheerlinck is chief executive of the Australian Institute of Superannuation Trustees.