Australia’s corporate watchdog has called on superannuation funds to overhaul the way they deal with death benefit claims, noting excessive delays, poor customer service and ineffective claims handling are leaving Australians worse off at some of the most vulnerable times of their lives.
The Australian Securities and Investment Commission (ASIC) has called on industry leaders to “take ownership of the problems and flex their muscle to fix the failings” after launching detailed investigations into 10 super funds, including interviews with their CEOs, over a two-year period to March 31, 2024.
ASIC’s review excluded two industry giants — Australian Super and Cbus — due to legal action the watchdog was taking against these funds over their handling of death benefit and disability claims.
But the 10 funds it did include in the review featured some of the nation’s biggest and were collectively responsible for 38 per cent of all member benefits in superannuation funds regulated by the Australian Prudential Regulation Authority (APRA).
A death benefit is the amount of superannuation remaining in a member’s account when they die, including any insurance payout if they had cover through their super fund.
ASIC chairman Joe Longo said while some funds performed better than others, “tellingly, none of the reviewed trustees monitored or reported on their end-to-end claims handling times or performance”.
“At the heart of this issue is leadership that doesn’t have a grip on the fund’s data, systems and processes — and ultimately, it is the customers who suffer for it,” Mr Longo said.
“This kind of disconnect is unacceptable in any area of corporate Australia, but in the superannuation sector it is particularly serious, because super affects everyone from the boardroom to the living room.”
The 10 super funds reviewed by ASIC:
- ART (Australian Retirement Trust)
- Avanteos (Colonial First State, FirstChoice Superannuation Trust)
- Brighter Super
- CSC (Public Sector Superannuation Accumulation Plan)
- HESTA
- Hostplus
- NM Super (AMP Super Fund)
- Nulis (MLC Super Fund)
- Rest
- UniSuper
Misplaced paperwork and compensation for delays ‘insulting’
While Cathy Clark is not named in the ASIC report, she is one of the people saying Australian Super dragged its feet in paying out a death benefits claim owed to her and other family members.
Australian Super has been accused by the watchdog of failing to process thousands of death benefit claims “efficiently, honestly and fairly” between July 2019 and October 2024.
And Cbus is being sued for delays in processing more than 10,000 death and disability payments.
Ms Clark’s brother, Craig Clark, was an Australian Super member who was diagnosed with cancer in August 2022 and died from it in January 2023.
Ms Clark says she approached her solicitor about the case in February 2023.
She says the fund took months to receive her brother’s death benefit payment, worth about $11,000.
She says the beneficiaries — including herself — finally got paid in March 2024.
Ms Clark says she faced repeated paperwork requests and was told by Australian Super they had misplaced documents and she needed to resend them.
“I got to the point where I was ringing … and just saying, ‘what’s going on, why are you taking so long?'” she said.
“There was a lot of tears and frustration, just based on the length of time.”
Ms Clark received a letter for compensation from Australian Super in early March for $28.99, to be divided between three people, 12 months after the death benefit payment.
“They sent me a letter — Australian Super — saying ‘We’re sorry we took so long to pay you, acknowledging the length and that it was unreasonable,” she said.
“I felt insulted. I would have preferred just an apology. It was — it’s not even worth, by the time I get it and then divide it by three.”
Ms Clark says she understands that super funds have an administrative process and certain documents need to be provided.
“But the process should just be quicker, especially in relation to death, when you’re already dealing with so much else that it just should be seamless,” Ms Clark said.
Under the law, superannuation funds are required to pay out the entire benefit including any remediation and inform the members about it.
An Australian Super spokesman told ABC News it was not able to comment on individual cases, but the fund was in the process of compensating people whose historical death benefit claims lodged between May 2020 and October 2024 “took longer than the fund’s internal target to finalise”.
It added that paying out members’ retirement savings and insurance after they died was “one of the most important services that we provide”.
It said these claims were now being dealt with in-house, with “75 dedicated case managers handling individual death claims from start to finish” and that since being launched in April 2024, “we have seen a significant reduction in claim processing times and are now achieving our target”.
ASIC review finds evidence of ‘deep grief, vulnerability, genuine suffering’
ASIC’s report noted that many of the complaints the watchdog reviewed were “distressing and evidenced deep grief, vulnerability, frustration and genuine suffering”.
The review said that overall, “claims processes and procedures were often unclear and inconsistent” and that “communication and engagement was often ineffective and insensitive”.
ASIC’s review found big variations in claims handling times, with about 48 per cent of death benefit claims closing in 90 days but the slowest trustee closing only 8 per cent of claims in this time.
Of the claim files ASIC reviewed, 78 per cent had delays caused by processing issues within the trustee’s control.
And 27 per cent involved poor customer service including phone calls not being returned and queries being dismissed.
It also found 17 per cent of claim files reviewed had claimants who were experiencing vulnerability and about 30 per cent of those were handled poorly.
ASIC commissioner Simone Constant said grieving Australians should not have to suffer further stress because of the failure of superannuation trustees to approach claims in a “timely, clear, and respectful manner”.
“Many of the complaints we read were distressing,” she noted.
In one case, a trustee took over 500 days to pay a death benefit of around $100,000 to a First Nations woman who was grieving the loss of her husband.
The trustee failed to respond to her concerns about financial hardship and did not support her when she struggled to understand and navigate the claims process.
“The money from a death benefit can make a huge difference and each day a trustee delays that payment causes real harm to families — trustees need to do better,” Ms Constant said.
‘Harm’ and ‘stress’ from delayed death benefit payments
ASIC’s report noted that when processing of a death benefit was delayed, “not only does the beneficiary suffer the stress of engaging with a complicated process while grieving, they are also denied access to money they are entitled to”.
“Claimants suffering financial hardship may not be able to afford the funeral, burial or cremation arrangements that are personally or culturally important for their grieving, leading to ongoing distress,” the review said.
ASIC said if a claimant relied on the member for financial support, “they may not be able to afford rent or mortgage payments, risking eviction or foreclosure and the associated fees and penalties”.
“Claimants may incur debt at high interest rates. They may forgo medical treatments or even meals. Financial hardship is also a strong predictor of poor mental health.”
ASIC also noted that many of the reviewed trustees had a practice of moving the member’s account balance and any insurance proceeds (when paid by the insurer) into the fund’s cash investment option, which could erode their retirement savings.
“While this reduces the risk of investment losses, it also reduces returns — delays exacerbate lost investment earnings,” the report said.
ASIC did not collect data about fees charged as part of its review but noted that “it is common for trustees to continue to charge administration fees and investment fees”.
“Trustees should not continue to deduct insurance premiums or financial advice fees while processing a death benefit claim,” ASIC said.
Super funds vow to improve claims handling post ASIC review
ASIC’s review comes after an uptick in complaints to the Australian Financial Complaints Authority (AFCA), which in 2023-24 alone, received 7,325 superannuation complaints — a 5 per cent increase from the previous year.
Despite this rise, superannuation complaints have consistently accounted for about 7 per cent of AFCA’s total complaints.
Ms Constant said ASIC would review the progress all trustees had made on improving their death benefit claims handling processes to ensure that they were appropriately prioritising the needs of members and their beneficiaries.
ASIC noted that “to prioritise taking action against misconduct, any trustee that was being considered for enforcement investigation was excluded from the final phase of the review”.
It said the 10 trustees they did focus on had since undertaken their own reviews into the reasons for complaints handling delays.
“Other trustees should take similar steps to identify issues and improve their practices to deliver the services that members and their beneficiaries expect from superannuation funds,” ASIC said.
Super Members Council CEO Misha Schubert said, “We are deeply committed to ensuring the highest possible standards of customer service — that’s what Australians with their retirement savings in super rightly expect.”
ASFA CEO Mary Delahunty said the “sector knows we have let down some of our members and their families at a time they needed us, and we are sorry”.
She said super funds have committed to “keep working until we get it right”.
By business reporter Nassim Khadem
ASIC has identified a multitude of Super fund failing when settling death benefits, as executer of my late daughter’s will, I was shocked to find that a super death benefit paid to a non-dependent is taxed at 17%. My daughter died with just one beneficiary, her adult daughter, now she will be hit with this “Super Death Tax”.
A Super death benefit left to a Spouse or dependant beneficiary is tax free, but to a non-dependant the balance is taxed at 17.5%.
It doesn’t seem to make sense to me, that to avoid paying 17.5% Tax on the Super balance death benefit to a non-dependant you can simply draw down your super assets before death and invest them outside super tax free.
It’s the same asset, yet this simple act could save $87K Tax.on a super fund balance of $500,000!
This is indeed a death tax that many people are unaware of, some people with significant funds invested in Super, including their farms and businesses, could be left bankrupt from this unfair tax.
My late daughter was a nurse for 33 years, she helped many people, received awards for saving a life in the community and achievements during her career., including the horrific 1998 Tasmanian bushfires (where she was a Triage nurse in A&E).
She had to endure abuse, being spat apon, slapped and punched when working in A&E. She died suddenly at age 57 years with just a small amount in super, her sole beneficiary, her non-dependant adult daughter is now hit with this unfair tax.
Advice from tax experts to avoid paying this tax is to drawdown your entire super balance before your death and invest the funds outside super.
This advice is only useful if you have a terminal illness and have reached the age to allow access to your super.
In my late daughter’s case she was not eligible to access her super at her age and she was not diagnosed with a terminal illness.
I think this tax should be abolished it is very unfair that my daughter worked so hard to pay into super all those years to see so much of it taken away from her daughter in Tax.
If ASIC does fine Australian Super/C BUS who do you think will suffer. The pensioner, who has worked all their life with limited pay rises so that companies could pay super contributions, will lose money, putting more pressure to pay more out in social security(ie pension payments). They will not care who has to suffer. What will the retirees get out of it, nothing as usual.