Improving superannuation member services – Dealing with death benefit claims

The way in which superannuation trustees approach their interactions with Australians can have a significant impact on people’s lives, especially in times of emotional and/or financial stress. As the conduct regulator of superannuation trustees, ASIC is focused on improving interactions that Australians have with their super funds. We have commenced a dedicated multi-year project continuing over 2024 and beyond, which will look at industry practices and compliance with laws in relation to trustee administration and contact centres.

Our initial focus is a two-phase review of how trustees handle death benefits claims.

As custodians of approximately $2.6 trillion in superannuation assets, trustees have a responsibility to prudently manage the hard-earned savings of their members. Superannuation trustees have an obligation to act efficiently, honestly, and fairly when servicing members. If services are not member-centric, and are slow and unresponsive, they risk delivering poor outcomes for individuals, and undermining confidence in the superannuation system.

The first phase of ASIC’s death benefit claims work has focussed on public website communications and resources about death benefit nominations and how to make a death benefit claim. This involved reviewing the websites of 22 trustees, which together accounted for about two-thirds (67%) of total APRA-regulated super fund assets (as of June 2023).

The next phase will look at relevant data and processes of a sample of trustees in detail.

This article outlines some observations from the first phase of ASIC’s review, as well as actions trustees should take to improve their approach and the experience of their members. Our work in this area continues, including assessing whether there have been contraventions of the law. We will share further insights in a public report later this year.

Complaints are on the rise

Complaints are a valuable source of information for trustees about the quality of the services being delivered. As well as dealing with death benefit claims sensitively and in a timely manner, ASIC expects trustees to use the insights they gather from complaints about death benefit claims to identify systemic issues with service delivery that need urgent intervention.

Between 2021 and 2023, there was a steep increase in the number of death benefits complaints to the Australian Financial Complaints Authority (AFCA). Growth in complaints about service-related issues doubled over this period, but complaints about delays in death benefit claims handling saw a disproportionate increase, surging from 2.5% of service-related complaints to AFCA in 2021 to 8.5% of service-related complaints in 2023.

Overall, complaints to AFCA about trustees’ delays in handling death benefits claims increased sevenfold between 2021 and 2023.

Source: AFCA EDR data and ASIC calculations, accessed March 2024

Since the beginning of 2023, ASIC has collected internal dispute resolution (IDR) data from all trustees. This is a shorter time series than for AFCA’s external dispute resolution (EDR) data, but the trends are similar. In particular, service issues made up more than half of all complaints to trustees. Our analysis of this data identifies IDR complaints specifically about delays in handling death benefit claims increased in the first quarter of calendar 2023 and have remained high.

Source: ASIC IDR data, accessed March 2024

While the steep increase levelled out towards the end of 2023, the overall volume of complaints remains high. We also noted that a small number of trustees appear to be responsible for a disproportionate share of complaints. ASIC’s ongoing work will, among other things, seek to understand the reasons for these trends and drive better practices across industry.

Death benefit claims can be complex

The legislative regime governing death benefit claims and beneficiary nominations is complex and the process that must be followed will vary depending on the fund’s governing rules and relevant legislation. There are many factors impacting the time it takes trustees to process a death benefit claim. Some of these factors are outside the trustee’s control – but many are not.

Many Australians are unaware that payment of their superannuation is largely controlled by the superannuation trustee after they pass away. Some trust deeds provide that benefits can only be paid to the member’s estate. Certain pension and annuity products can only be paid to the member’s spouse.

In many funds, trustees have discretion about who gets paid the member’s benefits. Only a current, valid binding beneficiary nomination in place at the time of death will override the trustee’s discretion: trustees will have to exercise discretion where there is a non-binding or invalid nomination (though the nomination will usually influence how the trustee exercises its discretion).

Because there are limits on who can be nominated (beneficiaries must be dependants of the member at the time of death unless the member’s estate is nominated), in many cases, trustees will have to undertake work to identify beneficiaries and/or verify that beneficiaries are entitled to be paid the benefit. Trustees need to balance the need to have simple, efficient processes with the need to provide enough flexibility to pay death benefits to the right people.

Helping members plan ahead

Trustees can do more to assist members to understand, put in place, and update binding death benefit nominations. Binding nominations can help streamline the claims process for both trustees and dependants, reducing turnaround times for claims handling.

Most of the trustees of 22 fund websites we reviewed have discretion as to how death benefits are distributed, and most allow members to make a binding death benefit nomination (which lapses after three years). Specifically:

• 19 of the funds allow members to make a binding nomination (which lapses after three years).
• 10 of the funds allow members to make a non-lapsing binding nomination.
• Four of the funds will automatically pay the death benefit to the member’s Legal Personal Representative if there is no binding nomination on file at the date of death, or the binding nomination is invalid.

But if trustees do not communicate with members effectively about the importance of making nominations, and the need to update them, members are less likely to have a valid binding nomination in place when it counts.

While all 22 of the websites we reviewed had some information about death benefit beneficiary nominations, the quality of the information provided was poor in a few areas. However, we note there are opportunities for funds to communicate with their members about death benefit beneficiary nominations other than through their website, for example, through proactive campaigns (our review did not extend to targeted member communications).

• Across the 22 websites we reviewed, three websites did not have any content that explained the importance of making a nomination.
• Most beneficiary nomination forms, accessible from the websites we reviewed, did not include sufficient information to assist the member to understand how to make a nomination: 16 trustees of 22 omitted crucial details in one or more of their beneficiary nomination forms, such as definitions of dependants, what might make a nomination invalid, and/or statements that members should review their nomination if circumstances change.
• Information provided about reversionary beneficiary nominations, which allow a nominated person (usually a spouse) to automatically receive a pension, often failed to flag important additional considerations relevant to this type of nomination (i.e. transfer balance cap and Centrelink implications). It would be best practice to draw these issues to a member’s attention.
• Information about death benefit nominations tended to be drafted in a complex, technical manner. On average, website pages and online factsheets we reviewed scored about 45 out of 100 on the Flesch Reading Ease scale (the highest being about 64) and 11.5 for the Flesch-Kincaid Grade Level scale (the lowest being 7.9). As approximately , we are concerned that the average Australian adult may struggle to understand what the average fund website has to say about making a nomination.

However, we did observe some better communications about nominations:

• Two websites included case studies for each type of beneficiary nomination and highlighted the importance of reviewing and updating the nomination when circumstances change.
• One website used a comparison table to explain when benefits can be paid to beneficiaries as a lump sum or a pension.
• One website used visuals and plain language in a factsheet to compare the differences between binding and non-binding nominations. The factsheet also explained to members, in simple terms, why making a nomination was important.

Strong website communications materials can serve as a foundation for more targeted communications: for example, trustees may wish to contact members who do not have a valid nomination in place, and as part of that communication, direct them to relevant materials on the website about making a nomination.

Effective communication is critical

Invariably, a death benefit claim will follow the loss of someone close to the member. In many cases, the death benefit will provide important financial support to the grieving beneficiary so the timeliness of payment can make a crucial difference to the financial wellbeing of the beneficiary. Trustees need to consider if their approach to death benefit claims handling is fit for purpose.

Disappointingly, we observed that website communications about how to make a death benefit claim were quite poor. Four of the 22 websites we reviewed did not contain any information about the death benefit claims process. Six websites did not explain how to commence a death benefit claim, and only eight websites contained information explaining how long it may take to finalise a death benefit claim.

Communicating clearly can reduce beneficiary anxiety, stress, and confusion for beneficiaries associated with death benefit claims, while also reducing the workload on claims staff and complaints about the process.

As discussed in in relation to insurance claims, superannuation trustees can improve the claims experience for beneficiaries by keeping them informed and setting clear expectations from the start and during the claims process. In the death benefits context, this means:

• explaining what the death benefit claim process involves,
• how long it can take,
• what information or documents will be required and when,
• why information and documents are needed and how they will be used to make a decision, and
• following through with what has been communicated.

Some of the better examples we observed included:

• Five websites had specific factsheets on death benefit claims available online. Several of these used clear visuals to illustrate the key steps in the process and/or explained what factors can affect the time taken to process the claim.
• Three websites had forms that a person could use to notify the trustee of a member’s death and initiate the death claim process. The best of those forms had a checklist attached, which clearly listed the documents required to be provided with the form, depending on the type of beneficiary completing the form (spouse, adult child, minor child etc.).
• Most (but not all) websites with in-built chat functions had optimised them to direct a person to relevant information on the website (or at a minimum direct a person to call their contact centre) if they were asked what to do if a member had died, while also expressing sympathy for the person’s loss.

We also reviewed what assistance was identified on the trustee websites as available for First Nations, culturally and linguistically diverse, and vulnerable people. Concerningly:

• Only four of the websites provided or offered information on death benefit claims in languages other than English. Just 10 websites mentioned assistance for members speaking languages other than English or offered a translation or interpreter service on their contact details page.
• Only nine of the websites offered assistance for hearing impaired people.
• Only seven of the websites provided a specialist contact centre number, or options for alternative proof of identification for First Nations beneficiaries.

There is a lot of room for trustees to provide more practical guidance online about claiming a benefit after the death of a member, to make the process less daunting for a member’s beneficiaries.

ASIC calls on trustees to act now

ASIC expects trustees to review the observations contained in this article and consider how they can improve their communications with consumers about death benefits. While some trustees are doing better than others, all trustees should continuously focus on effective communication with members and beneficiaries.

Trustees should also be regularly reviewing complaints received about their claims handling processes and procedures to identify opportunities for uplift.

ASIC is currently undertaking the next stage of our death benefits review. We are seeking detailed information from a selection of trustees to obtain a better understanding of the timeliness of claims, their processes, and where improvements may need to be made.

ASIC is committed to promoting better practices and holding trustees to account as conduct regulator. Member services failures in the superannuation sector is an enforcement priority for ASIC. Where we identify non-compliance, we will consider the full range of regulatory tools available, including enforcement action.

Our recent enforcement actions demonstrate our commitment to holding the industry accountable for any actions or inactions that deliver poor outcomes for members. Last year, for instance, we commenced civil penalty proceedings against , alleging it failed to comply with internal dispute resolution requirements.

In our work, we have drawn on AFCA’s insights dealing with complaints and from its EDR data. ASIC will also continue to work collaboratively with APRA, the prudential regulator, to drive improvement in trustee practices in relation to death benefit claims.

ASIC is Australia’s corporate, markets and financial services regulator.