The Superannuation Complaints Tribunal comparing fees on a member by member basis after a fund merger or successor fund transfer (SFT) will send a chill down the spines of many trustee directors and their management teams.
The Trustee transferred the member's benefits from one superannuation fund (Former Fund) to another by SFT (without obtaining the member's consent to the transfer). The Trustee was the trustee of the Former Fund and the receiving fund (Fund). The member complained to the Trustee about the fees charged to him after the SFT and then complained to the Tribunal regarding the Trustee's decision to reject his complaint.
Significantly, the trust deed for the Former Fund prohibited the Trustee from charging fees, but permitted the Trustee to be reimbursed for its expenses. An issue before the Tribunal was whether that was a right in respect of benefits and, if so, whether it needed to be replicated in the Fund. The Fund's trust deed permitted the Trustee to charge for its services and to be reimbursed for expenses, which is exactly what it did.
In the member's submission to the Tribunal he referred to total fees and charges of $467.17 in the year before the SFT, $4,364.14 in the year of the SFT and $8,870.03 in the first full year after the SFT. He submitted this increase constituted over charging and, as a result, he incurred financial losses and lost interest on his money. He further submitted that his membership application form (which could not be found by the Trustee) showed that his account followed the establishment of a much larger account for his wife and both accounts were linked for the purpose of calculation of the management fees payable in the Former Fund, which resulted in rebates that lowered the fees that applied to him. He also pointed out that the product disclosure statement for the Former Fund said that three months' notice would be given for any change in administration fees.
The Trustee submitted that it had made full disclosure of the fees that applied in the Fund and had provided the member with 49 days' notice of the transfer, 19 more than the law required. The Tribunal invited the Trustee to provide submissions on a number of matters, but the Trustee did not make full use of that opportunity. Specifically, the Trustee did not explain why the SFT was in the best interests of the transferring members or why the Fund provided equivalent rights in respect of his benefits. In our opinion, this information was central to the complaint. What rights with respect to benefits needed to be maintained? (exactly the same or similar and, if similar, how close?) Were fees part of the best interests analysis or the equivalent rights analysis? Would the answers to these questions have been different if the Trustee had broadly equivalent fee charging powers in both funds but charged different fees historically?
The Tribunal decided that the consequence of the management/administration fee and the investment fee applying to the member in the Fund when they did not do so in the Former Fund was that "he did not have equivalent rights in the Fund in respect of his benefits to the rights that he had in the Former Fund". In other words, the Trustee did not comply with the law regarding the SFT. The decision has the potential to affect many more people than the member who made this complaint.
The Tribunal determined to set aside the decision of the Trustee and substitute its own decision that the Trustee compromise the claim by refunding the fees in the Fund that exceeded the fees that would have been charged in the Former Fund if he had remained a member of that fund. The Trustee was also to assume a specific investment earning rate when calculating interest for the amount to be refunded. In making this decision, the Tribunal relied on the State Trustee Act giving the Trustee power to compromise a claim.
This is a reminder to trustees of the importance of legislation beyond the Superannuation Industry (Supervision) Act when administering their funds. [D 14/15-184]
An administrative error caused a doubling of the member's account balance. The member argued that she had relied on the overstated account balance to her detriment and now wanted her account reinstated with an amount which equalled her loss. The Trustee refused to do so.
On 30 June 2009 the member's withdrawal benefit was $298,053.48 and six months later it was $574,178.97. The error continued to be shown on benefit statements for the next 3 years. However, before the incorrect benefit statement for the period ending 31 December 2009 was sent to the member at the end of June 2010, she received a letter from the Trustee saying there was an administrative problem with incorrect accounts and there was an "issue" with her account. The letter said she would be advised if an adjustment to her account was needed to correct any errors.
The member argued that the Trustee's error amounted to misleading and deceptive conduct under relevant legislation and that this conduct also amounted to a negligent misstatement and a breach of the Trustee's duty to act with care, skill and diligence (section 52 of the Superannuation Industry (Supervision) Act (SIS)). On this basis, she wanted compensation because she had relied on the benefit statements to her detriment. It was also submitted that regulation 13.16 of SIS prohibited a reduction in the amount of her accrued benefits and that the correction of the error by the Trustee was in breach of this regulation. Further, it was submitted the Trustee was estopped from adjusting the benefit to the correct amount.
The Trustee acknowledged the error had been made but said it needed proof that she had relied on the incorrect benefit statements, that she had altered her position as a consequence of that reliance and that she had actually suffered loss. It was at this point that the Trustee and member were clearly in dispute as to what amounted to the necessary evidence of reliance and loss.
The Tribunal agreed with the Trustee that it was not reasonable for the member to rely on the incorrect statements without seeking further explanation from the Trustee as to why her balance had effectively doubled in size. A reasonable person would have made an enquiry. Mere assertions of reliance is not the same as convincing evidence of acting in reliance on the incorrect statements. For example, she had not supplied copies of her tax returns and assessments as requested by the Trustee, nor evidence as to job offers and her refusal of those.
The Tribunal held that the Trustee was not estopped from correcting the mistake.
"It is required, in complying with the trust deed governing the Fund and in acting in the best interests of the beneficiaries of the Fund (as required by section 52(2)(c) of the Superannuation Industry (Supervision) Act 1993 and trust law) to pay to the Complainant a benefit that is calculated in accordance with the trust deed and is entitled to correct mistakes made in the calculation of a benefit and to take appropriate steps to recover an overpaid amount."
Regulation 13.16 of SIS was also held not to be breached. The Tribunal pointed out that the words "accrued benefits" in the regulation are not defined and take on their ordinary meaning. Based on the decision in Employers First v Tolhurst Capital Ltd  FCA 616 an accrued benefit for the purpose of regulation 13.16 cannot exceed the benefit to which the member has an absolute entitlement. In the Tribunal's view an erroneous amount shown on a benefit statement is not an accrued benefit because it is open for correction.
Accordingly, the Trustee's refusal to compensate the member was held by the Tribunal to be fair and reasonable in the circumstances. [D14-15/203]
This article was first published in Superfunds, June 2015