Super funds brace for complaints influx amid regulatory adjustments

As the fund merger dust settles and a raft of regulatory changes come into effect in the next 18 months, complaints management looks to be a continued challenge for super funds, according to two superannuation lawyers.

In the previous month, the Australian Financial Complaints Authority (AFCA) reported a historic milestone, revealing a total of 100,000 recorded complaints in the calendar year 2023, with AFCA chief executive and chief ombudsman David Locke expressing concern over the unsustainable rate of increase.

While scam-related complaints to AFCA nearly doubled from 2022–23, increases were also recorded across other financial products such as superannuation, banking and finance, insurance, and investments and advice.

In fact, speaking to Super Review, AFCA chief operating officer Justin Untersteiner highlighted an “enormous increase” in complaints regarding super funds.

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Of the top issues complained about in 2023, delays in claim handling attracted a 20 per cent increase in complaints to some 10,692 and came second only to unauthorised transactions with 12,289 complaints. 

According to Lisa-Marie McKechnie, partner at Piper Alderman, the trend is likely to continue in 2024, with complaints handling posing a “big challenge” for funds.

“I think it’s going to be a very big challenge for super funds this year because you’re seeing a lot of mergers actually come to completion, which means you’re going to have a lot more members in one fund,” she told Super Review.

“There’s always issues that come with successor fund transfers, blackout periods where things don’t go smoothly.”

The previous year saw numerous large funds become active players in the merger space, including UniSuper with Australian Catholic Superannuation, Mercer Super with BT Super, Hostplus with Maritime Super, and Cbus Super with EISS Super.

Several mergers are anticipated in 2024, with Mine Super and TWUSUPER set to create a $20 billion fund. Additionally, a merger is on the horizon between AvSuper and the Australian Retirement Trust (ART), along with another merger involving CareSuper and Spirit Super.

“You put [the mergers] on the back of 2023 where AFCA saw the largest number of complaints ever in a year, and I think it’s going to be an ongoing challenge, and I think we need an industry-wide approach to it,” McKechnie observed.

She opined no one fund could do it in isolation, driving the need for a much larger scale of cooperation and communication.

“It may be a case of regulators having feedback sessions, looking at what’s working and what’s not,” she offered.

Outlined in ASIC’s Regulatory Guide for Internal Dispute Resolution (RG 271), the regulator’s internal dispute resolution (IDR) regime looks into complaint identification and management and is designed to focus on member complaints being dealt with swiftly and efficiently by financial firms.

It commenced in October 2021 and includes the requirement for super funds to respond to most super complaints within 45 days.

“[Superannuation] is such an exciting industry and we don’t want to have a reputation as being an industry that doesn’t respond to complaints or where members continually are dissatisfied with the service they’re getting,” McKechnie added.

Last year, the corporate regulator took its first action regarding IDR when it commenced civil penalty proceedings against TelstraSuper in the Federal Court in November over IDR inefficiencies.

Piper Alderman partner, Kathy Neilson, observed that in light of such regulatory action, super complaints management was getting “more real” for trustees.

She highlighted recent comments in the media from ASIC chair Joe Longo that the corporate regulator was willing to pursue a riskier litigation strategy in a bid to protect consumers and investors.

“I know [he] came out and said, ‘[W]hen we lose, we’re trying to illustrate to the government where the laws have to change’. It’s an interesting approach to say that ‘[W]e’re going to take cases on, we know we’re probably not going to win, but we’re doing it for the purpose of calling out behaviour or where we think the law isn’t working well’ and somewhat forcing the government towards action,” Neilson elaborated.

“If I was a trustee, I’d be a little worried. It’d be costly for funds to defend [such claims] and for the taxpayers. In some cases, it’s going to be the right thing to do, but it’s costly for everybody.”

Issues of resourcing

According to the two lawyers, resourcing remains a major concern for super funds in the run-up to several regulatory changes.

This includes the Financial Accountability Regime (FAR), which received royal assent in September last year and will impose a strengthened responsibility and accountability framework for super funds from next year. 

Another crucial compliance requirement in the works is the prudential standard CPS 230, which aims to ensure that an APRA-regulated entity is resilient to operational risks and disruptions.

“For trustees, there’s so much they need to deal with, lots of regulatory change coming up, and maybe some of the staff that would have been dealing with complaints have to be moved to other areas of compliance, to deal with all of the things that are coming into force soon like FAR and CPS 230,” Neilson said.

“There’s so much coming up that requires preparation and lead time. Particularly for the FAR and CPS 230, they are huge projects that are going to go across whole organisations, and people will have to run it and be able to link up all the different pieces across all the different areas of the business. That’s got to be impacting the compliance function.”

Some of Australia’s largest super funds, including $300 billion AustralianSuper, have already taken steps towards improving their dispute resolution in light of heightened scrutiny.

The mega fund last year opted to insource its complaints handling among several changes to its claims management process. This included insourcing its death claims management through a new Bereavement Centre, while also implementing additional complaints handling capability by the end of the financial year.

The establishment of a dedicated Bereavement Centre aims to leverage the specialist expertise of the fund’s internal team and ensure members’ savings are paid to their loved ones efficiently, AustralianSuper said.

It followed AustralianSuper’s decision to transition to a new claims assessment model with its insurer TAL in 2022.

McKechnie pointed out that the spotlight on super complaints could also spill over into funds’ choices of administrators.

“With the number of funds that are merging, you’re seeing administrators losing funds that they previously administered. You’ve got administrators who are making loads of people redundant. Some administrators have made a number of redundancies because they don’t have the funds to administer and the inflow, which means they are cutting staff, and it means the funds they do look after have less staff to look after them,” she explained.

She believes there remains a link between that and the insourcing of super administration, with funds opting to “do it themselves” after years of poor service.

“I can see the industry, this year, really having an overhaul in terms of administrative services,” she told Super Review.

“Certainly, a couple of funds we’re working with are overhauling their insurance arrangements to make sure they’re getting their bang for buck, and that’s related because a lot of complaints that land up at AFCA relates to insurance.”