One of the biggest superannuation funds in the country responsible for $94bn in retirement savings has been accused of failing its members at their most vulnerable time and causing undue hardship.
The scandal – which Cbus has apologised for – has intensified scrutiny on the $3.9tn superannuation industry, with regulators warning other funds may be at fault too.
What has happened at Cbus?
Cbus has admitted to lengthy delays in processing its members’ claims for death and disability payments. These are lump sum payments that members were entitled to.
These delays caused financial hardship for grieving families who needed the money to clear debts or pay bills after losing an income earner.
The Australian Securities and Investments Commission (Asic) has lodged federal court proceedings that allege Cbus failed to process more than 10,000 of these claims within 90 days. More than 6,000 members had to wait more than 12 months for payments.
Asic alleges Cbus “failed to act efficiently, honestly and fairly in the handling of claims for death benefits and total and permanent disablement insurance”. It has accused Cbus of failing its members “at their most vulnerable time”.
Cbus is yet to file a defence in court.
What does Cbus say?
The industry fund admits it let its members down, causing them unnecessary distress at difficult times. The fund says there was no intention to withhold money from its members and has highlighted outsourcing as an issue.
Cbus’ chief executive, Kristian Fok, told a Senate inquiry on Thursday that he was “sorry for the impact that delays in processing insurance claims have had on our members and our families”.
“We are committed to doing better, and we will,” Fok said. “Many of our members have high-risk jobs where injury and deaths are more common. We know that delays in processing claims can add to their distress at a difficult time.”
Fok said about 80% of the more than 7,000 claims subject to Asic litigation have been cleared.
Cbus has established a compensation fund for affected members and says it is cooperating with Asic.
How did these delays affect Cbus members?
ASIC’s deputy chair, Sarah Court, believes these delays have caused “real harm to families who may be relying on the payments to meet critical expenses”.
“This adds to difficult personal circumstances, whether grieving for a loved one or dealing with severe injury or illness,” Court said in a statement earlier this week. “The additional anxiety and pain these delays caused compounded the issues these members and their families faced.”
The amount of payments subject to delays was around $20m.
Will Cbus members pay for any enforcement penalty?
Potentially.
If Asic’s claims are upheld, Cbus could face a fine of up to $49m. The regulator has acknowledged members could be forced to pay for some of that fine and wants this to be considered by the court.
On Thursday, the Liberal senator Andrew Bragg asked Fok whether members could be on the hook for a regulatory fine.
“Look, I am not going to speculate on that,” Fok replied.
“As you know, speculation on that before we have even had the ability to look at the full detail is not going to be helpful.”
Bragg told Guardian Australia that Fok should have ruled out making members contribute to any regulator fine. “Members should not pay for the sins of trustees,” he said.
What are death benefits and disability payments?
Members pay premiums for death cover to ensure that when they die, their family members can receive a lump sum.
“This coverage provides reassurance, knowing your loved ones and dependants will have financial support if you die,” the Cbus website says.
Total and permanent disablement cover works in a similar way. If a member is injured or becomes so unwell they are unlikely to ever work again, a member receives a lump sum payment.
Does this affect other funds?
Court, Asic’s deputy chair, said the regulator believed there were “widespread customer service failings on death and disability claims across the super industry”.
“I think it’s fair to say that we do think this is a broader, industry issue,” Court said. “We are doing a deep dive surveillance of superannuation trustees’ handling of death benefits claims more broadly.”
The watchdog has lodged court action to send a message to all funds that these type of delays – whether intentional or not – are unacceptable.
Asic is also writing to the chief executives of several funds about its concerns, with a report on their conduct due early next year.
“We may well have further enforcement action to follow,” Court said.
What is industry super?
Most industry super funds were established by trade unions to manage the retirement savings of workers in particular industries.
The Construction and Building Unions Superannuation (Cbus) is open to all Australians and is one of the country’s largest funds. But it does appeal directly to workers in that industry and tailor its services to them.
Cbus has a mutual fund structure, which means all profits are retained for members. Unlike retail super funds, it does not pay dividends or profits to shareholders.
What does the government say?
So far, the government’s response has been relatively muted. The treasurer, Jim Chalmers, has said it was “really important regulators do this work”.
“Those allegations are now before the courts, and the standard practice, which I’m adhering to today, is that we don’t comment on matters before the court.
“But I’m a strong supporter of our regulators, and when they find issues that concern them, they should test them, which is what they’re doing now.”
