Open Letter to Australian Superannuation Fund Trustees

Dear Trustees,

IMPROVING MEMBER COMMUNICATIONS

I am writing on behalf of Super Consumers Australia at CHOICE and three other consumer organisations to express our disappointment at the way many trustees communicated the impact of changes legislated by the ‘Protecting Your Super Package’ (PYSP) earlier this year, to remove insurance in superannuation from inactive accounts to their members.

We surveyed a selection of letters, e-mails, social media, and websites, and have been underwhelmed by the effort most trustees have made to ‘provide helpful and balanced communications to their members’, as urged in ASIC 19-095MR.¹

Trustees are required to act in their members best interest, and also, to meet the objectives to act efficiently, honestly and fairly stated in the Corporations Act. Attempts to manipulate people into taking up or maintaining insurance cover that they may be unable to claim against falls well below these standards.

With further changes to insurance in superannuation imminent with the passage of the Putting Members Interests First (PMIF) Bill, trustees must accept their responsibilities, and improve the way they are communicating with their members to meet both the spirit and the letter of the law.

Further, the obligation to notify members of changes to their insurance arrangements provides fund trustees with an opportunity for useful engagement with members, such as collecting data on dependants.

Poor and potentially misleading communication

The changes legislated by the ‘Protecting Your Super Package’ (PYSP) in February included good news for fund members. Banning exit fees made it easier for people to get out of poor performing funds. Capping fees on low balance accounts reduced balance erosion. Sending low balance, inactive accounts to the ATO for consolidation will save money and in many cases allow people to maintain insurance for longer. However, we saw little emphasis of these benefits in communications.

We are more concerned with the way information on the removal of insurance from inactive accounts was presented.

The loss of insurance is a risk for some people, but it is unfair for trustees to be urging people to maintain policies that they may be unable to claim against. A significant number of group insurance policies require a work test or some income to make a valid claim. The most likely reason for an account to be inactive is either because someone has moved to a new employer, or they are not in paid employment. These factors both impact the type and quality of cover required.

Trustees have an obligation to inform members of any possible disqualifying factors, rather than merely telling members that their insurance will be cancelled if they do not opt in.

Few trustees have demonstrated a willingness to consider their members interests in how they have communicated the changes.

Many communications omitted consequential facts; including failure to disclose a relevant premium cost and benefit relevant to the individual, failing to specify whether a member’s account was “inactive” as defined in the legislation or not, or failing to communicate that any cancellation would not affect the members rights in relation to an insurable event had occurred while the policy was active, or to seek advice if they believe they have a claim.

Many funds have failed to consider the cognitive and financial capability of their members, and opted to overwhelm members with data, sending multi-page spreadsheets requiring multiple mathematical equations and an understanding of product design to determine the precise cost and benefit of a product.

We consider it reasonable and appropriate for superannuation trustees to commit to user testing communications to improve member outcomes; and to providing staggered notifications via a range of channels well ahead of the opt-in date.

Vulnerable people will lose out twice

We consider it reasonable and appropriate that superannuation trustees conduct direct outreach with their members in vulnerable communities. We are concerned that a lack of clear and balanced information, presented in a way that does not consider people’s needs, only compounds problems of economic exclusion.

We are particularly concerned about the impact of changes on superannuation members in remote and regional Australia, particularly in isolated Aboriginal communities.

Given people in these communities can frequently lack reliable mail services, or phone and internet coverage, it is possible that these members will either not receive appropriate communications, and even if they do, may not understand them, given the concerns identified above. Many members may be totally unaware that they have lost insurance cover due to this law change.

Financial counsellors in remote communities describe regularly assisting Aboriginal people (and their families in the event of their death) to claim insurance benefits held through super funds. While we consider the legislated changes are positive, there are people whose super balances have been eroded by insurance premiums who will now be deprived of the benefit of that cover.

We think that trustees should recognise this possibility, and introduce contingency arrangements. This could include insurers agreeing to meet claims where it can be reasonably established that it was likely that no communications were received by the member, particularly where premiums have been paid over a considerable period of time.

We welcome the passage of the Putting Members Interests First (PMIF) bill, and urge fund trustees to improve the way they are communicating with their members.

Kind regards,

Xavier O’Halloran
xohalloran@choice.com.au

Also on behalf of:

Karen Cox, Chief Executive
Financial Rights Legal Centre

Fiona Guthrie, Chief Executive
Financial Counselling Australia

Gerard Brody, Chief Executive
Consumer Action Law Centre

^1. https://asic.gov.au/about-asic/news-centre/find-a-media-release/2019-releases/19-095mr-asic-warns-trustees-about-protecting-your-super-laws-and-provides-guidance-for-consumers/