01 Aug 2015

Super verdict: Statements and switches

By Jane Paskin, Mary Konstantopoulos 

A round-up of recent Superannuation Complaints Tribunal determinations.

Case 1

In 2008, the former fund introduced automatic death and disablement insurance for its personal division members. Each member could advise the trustee if they wished to opt out of the cover. The trustee advised members of this change with an initial letter in November 2007, and a follow-up letter in January 2008, however it did not have the correct address for the complaining member. Subsequently, the former fund merged (by way of a successor fund transfer) to the new fund.

In October 2010, the member contacted the new fund and questioned why he had insurance cover. Only when the member sent a letter of complaint in September 2012, was the insurance cancelled. At this time, the trustee offered to repay the cost of the insurance premiums, if the member provided it with a statutory declaration stating he did not receive the former trustees letters dealing with automatic insurance cover in 2007 and early 2008. The member declined this offer.

The trustee reviewed its decision, and decided that if the member signed an agreement discharging the trustee of any further claim, it would pay the member a refund of the amount of the premiums deducted.

The member refused this offer as well, and then complained to the SCT that the trustee's decision to refuse to refund him the insurance premiums deducted from his account, the earnings lost as a result of those deductions, plus repayment of all management fees taken from his account since 2008, along with time costs, was unfair and unreasonable.

The Tribunal noted that both the trust deed for the former fund and the new fund imposed an obligation on the member to provide an up-to-date address for communication with the trustee. The Tribunal considered that any failure of the member to do so contributed to the loss he claimed to have suffered by the provision of insurance and the deduction of premiums. Given this, the Tribunal held that it was reasonable for the trustee to refuse to compensate the member for the list of items he requested, and instead offer him the refund of the premiums alone, subject to the proviso that he agreed to sign a discharge in favour of the trustee. [D14-15\216]

Case 2

A transfer of a benefit from one fund to another led to a member complaining that the funds' different switching processes saw him incurring a loss.

The member complained to the SCT in relation to losses that he allegedly incurred, due to the trustees delay in giving effect to switches in investment options that the member requested, and in relation to a shortfall in his account. The member sought compensation for his losses as a result of the 'delay', and compensation for lost interest.

Initially, the member was part of a fund (the 'former fund') which had undertaken switches in investment options on his behalf. On 1 January 2013, the member's benefit was transferred to the new fund, without the member's consent, by way of a successor fund transfer.

As a member of the new fund, he instructed the trustee to make a number of switches in the investment options where his benefit was invested, and the trustee gave effect to those switches, but not to the member's satisfaction. The member therefore complained in relation to these switches and, in particular, that the amount switched was, in some cases, less than the amount recorded on the trustee's records as the account balance on the day he requested the switch.

While a document was provided to members when the successor fund transfer occurred outlining the switching process, it did not explain the changes in adequate detail. The reason why the amount switched could be different from the amount shown on the member's account on the day the switch was requested was explained to the member in two separate letters from the trustee.

The trustee explained that the disparity was due to a two day delay in crediting investment returns, which could lead to a scenario where the amount switched was less than the amount shown in the account balance on the date the switch was requested. The trustee's records and records available for members did not reflect the credit ratings that had not yet been allocated to members' accounts.

This explanation revealed that there was no shortfall in the amounts switched, or in the member's account balances in the new fund. In relation to the two other issues raised by the member, there had been no undue delay in processing a transfer request and no significant change to his taxable and tax fee components compared with the position at the time of the transfer from the former fund.

The Tribunal therefore determined that the trustee's refusal to compensate the member for alleged losses in relation to the switches was fair and reasonable given the circumstances. [D14-15\217]

Case 3

Where an administrative error occurs it is the trustee's responsibility to notify members as soon as possible.

On 29 November 2013, the member complained to the Tribunal that the trustee's debiting of $13,531.07 from his superannuation account on 9 May 2013 was unfair or unreasonable. The member argued that the amount should be re-credited to his account.

On 12 October 2010, the trustee became aware of an administrative error that impacted members who had engaged in investment switches. The error involved the application of an additional day's earnings to investment switches made prior to 12 October 2010, which meant that those affected members' account balances were overstated. Switches were made after 12 October 2010 were not affected by the error.

Between 11 June 2008 and 12 October 2010, the member effected nine investment switches, which led to a compounding effect operating on the error that further distorted the true position of the member's account balance.

While the trustee advised the member of the error via a letter on 17 May 2013, between 12 October 2010 and May 2013, the member received five pension statements that showed the member's account balance. For some of these statements the trustee knew the account balance displayed was inaccurate. This raised the possibility that the trustee engaged in misleading or deceptive conduct - that is, conduct that would cause an ordinary or reasonable member of the class of person who the representation was made to operate under an erroneous assumption.

It was fair for the member to have a reasonable expectation that the error would have been communicated to him as soon as possible.

Despite the trustee needing to undertake a large remediation process, it was found that this did not alter the importance of the fiduciary duty imposed on it by statute and general law, which governs its dealings with its members.

The Tribunal accepted that the trustee was unaware of the error until 12 October 2010, by which time the member's account was significantly overstated. The member's statement of 31 December 2010 should have contained a warning that the account balance displayed was inaccurate. This denied the member the opportunity to curtail his discretionary spending.

It was therefore appropriate for the member to be compensated for the full amount debited by the trustee. It was unfair and unreasonable for the trustee not to advise the member after 12 October 2010 that an error had caused his account balance to be erroneous. [D14-15\208]

This article was first published in Superfunds, August 2015

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.