ASIC has released its long-awaited report on the handling of death benefit claims by super funds, Report 806: Taking ownership of death benefits: how trustees can deliver outcomes Australians deserve.
While informational in nature, the report coincides with ASIC’s crack down on service standards within superannuation funds. The report reveals timely insights into what ASIC considers to be unsatisfactory and pathways to good practice. The report also provides insights regarding peer performance that will assist super funds to benchmark their own performance in the death benefit context.
The upshot from ASIC’s report is that super funds can mitigate the risk of enforcement action by:
Keeping and tracking better data about processing times and complaints.
Encouraging more members to make binding nominations.
Ensuring staff and correspondence are appropriately compassionate and empathetic.
Streamlining controls that create delays where there is low risk of incorrectly paying benefits, including claim staking.
There are currently very few mandatory service standards for super funds.
Most of ASIC’s ‘good practice’ suggestions are commercial or operational in nature, coupled with a strong encouragement to ensure that beneficiaries are treated compassionately and empathetically.
ASIC sees these as linked to legal obligations to act with ‘care, skill and diligence’, ‘efficiently, honestly and fairly’ and in the ‘best financial interests’ of members.
ASIC has suggested these can have FAR-implications for accountable persons.
Service standards are already leading to ASIC enforcement action against some funds, so ASIC’s findings take on heightened importance.
ASIC reviewed 10 funds over two years.
This included industry funds and retail funds, with both insourced and outsourced administration.
Although the review included externally-insured death benefits, the report indicates that it is important for funds to ensure they are also monitoring processing times with comparable rigour in cases where there is no insured benefit.
The fastest fund paid 48% of death benefits within 90 days and 75% within 180 days.
The slowest fund paid out 8% of death benefits within 90 days and 47% within 180 days.
Insurers have well-defined KPIs and are relatively quick at paying insured benefits.
Most processing delays (78%) occur within the trustee or administrator.
Death benefits are paid fastest if there is a binding nomination. Payment times are longer if there is no binding nomination.
Funds with insourced administration generally had faster payment times.
Most complaints are about service and delays – only 1% of complaints are about who the trustee decides to pay the death benefits to. This suggests there may be more to gain by investing in improving processing times rather than in additional rigour when deciding the recipients of death benefits.
If super funds pay the wrong beneficiary, they can be required to re-pay the same death benefit to the correct recipients.
Some super funds have designed processes to avoid this risk. This can contribute towards processing delays.
ASIC has encouraged funds to reassess their risk appetite – for example, to bear the risk of incorrectly paying out death benefits by streamlining their processes to improve payment times in simple situations. It may be the case that some risk controls can be removed or streamlined without any material increase in disputes over the recipients of death benefits. We have advised on these sorts of process improvements by taking a risk-based approach.
ASIC observed gaps in reporting to board and board committees.
Lack of data specific to death benefit processing times.
Lack of data on total time from being notified of the member’s death to actual payment.
Averages look better than reality because long-delayed claims drop out of the calculation once paid.
Data often focuses only on death benefits with insured benefits (and ignores death benefits where there is no insurance).
All funds had to resubmit their data to correct errors.
Administrators tend to have less detailed KPIs than insurers.
Claim staking’ protects funds from claims by disappointed beneficiaries if the fund waits 28 days before paying a death benefit after notifying potential beneficiaries (i.e. if there are no complaints in that time).
However, this does not appear to be a widespread source of delay.
Very few funds use claim staking nowadays. The fastest funds only claim staked in 1% of cases. On average, funds claim stake in only 23% of cases.
In contrast, however, one of the slowest-paying funds claim staked in 92% of cases.
Pro forma correspondence and staff lacked empathy and clarity in some cases.
Information was sometimes collected in a piece-meal fashion instead of all at once.
There was duplication in information requests.
Information was sometimes unnecessarily requested.
When two funds merge, sometimes the member cohorts experience vastly different processing times.
Merger funds should be mindful of the impact on processing times when onboarding new cohorts that are subject to procedures different from the status quo.
ASIC found there was scope for improvement in dealing with First Nations claimants:
Offering alternative personal identification options.
Being flexible when claimants have limited access to phone and postal services, internet, printers, photocopiers and certification services.
Being understanding when there is cultural discomfort about saying the name of a deceased member.
Chat to G+T
We have experience in streamlining trustee processes and negotiating administrator KPIs by taking a risk-based approach. Contact us if you wish to discuss your fund’s processes or related enforcement issues.