Written by Partner Geoff Sanders
ASIC Report 529: Member experience of superannuation, released just a day before the Productivity Commission officially sets its sights on assessing the state of the superannuation system, serves as a timely reminder of the ever-increasing expectations of the conduct and disclosure practices of superannuation trustees.
Just in case superannuation trustees were in need of a further reminder, after years of ever-expanding regulatory obligations and increasing regulatory and media scrutiny of an industry undergoing significant long-term change, ASIC Report 529: Member experience of superannuation provides a further insight into the increasing professionalism that ASIC expects of trustees.
The Report represents ASIC's findings coming out of a range of work they have done that sought to assess the impact of super trustees' conduct and disclosure on those who should rightfully be the focus of any trustee's work – their members. In particular, ASIC has conducted trustee surveys, surveillance visits and thematic review exercises across a cross-section of the industry under two separate projects – their 'Member Experience project' and their 'Effective Disclosure project'.
Our general observation – continuing trend away from disclosure as the be-all of compliance
The key findings of those two projects (some of which are discussed below) are in themselves interesting and provide further practical guidance to superannuation trustees about a range of specific areas, including useful guidance relating to the thoroughness expected in relation to disclosures of insurance offerings, the extent to which trustees need to give detailed reasons for denied member claims, the content and prominence of MySuper dashboards and marketing practices for the consolidation of accounts.
However, while much of the guidance can probably be seen as simply further ASIC guidance for existing disclosure obligations, what is perhaps more interesting from a policy perspective is that some of the more striking recommendations arguably require trustees to go further than what they would be strictly required to do to comply with existing disclosure requirements.
In particular, in some of the findings (such as the suggestion that PDS disclosures alone aren't sufficient to alert members to the potential loss of insurance benefits or the suggestion that trustees should consider making insurance policies available to members – see below for more details), ASIC is clearly suggesting that it is not good enough for trustees to take the view that mere compliance with mandatory disclosure requirements is sufficient.
That is, ASIC's implicit suggestion (although admittedly not addressed in such direct terms in the Report) is that in order to comply with their duties, trustees should be going over and above mandated disclosure requirements to more proactively engage with individual members or groups of members (and particularly those members who are vulnerable to adverse outcomes in particular scenarios) and/or to provide more fulsome disclosure and guidance than most of us might have thought was strictly necessary to comply with the existing disclosure requirements.
Keen readers of Unravelled will recognise that this is not a new trend – it's a theme that we're seeing consistently across the financial services industry, particularly since the Financial System Inquiry Report in 2014 suggested the need for a move away from treating disclosure alone as king, and can be seen perhaps more directly in developments such as ASIC's proposed expanded powers for product suitability.
However, while it may not be new, it does potentially set an ever increasingly high bar for trustees to jump over.
Some of the Report's findings in more detail
While we won't cover all of the findings (although we note that the Report itself, a relatively easy read at only 35 pages, is well worth a read for anyone involved in preparing superannuation disclosure documents), some of the key findings that jumped out at us were as follows:
- Insurance disclosures are inconsistent and inadequate: Insurance was a key focus of the Report and ASIC was critical of the quality and consistency of some disclosures relating to insurance, particularly in relation to disclosures as to the coverage of (and exclusions to) policies, which ASIC clearly feel need to be very detailed and (not surprisingly) closely match policy terms themselves.
- Trustees need to be more proactive when cover changes or ceases for a particular member or group of members: One of the more interesting recommendations was ASIC's suggestion that PDS disclosures alone may not be sufficient to protect members from events that result in a material change to, or loss of, insurance cover. For example, ASIC suggest that where a specified event may result in a loss of cover (eg a change in occupation or drop in a member's account balance below a qualifying dollar threshold), a trustee may be required to take proactive action such as contacting the member via email or text message to alert them to the potential loss of cover (and that merely relying on a historical disclosure of the potential cessation of cover is not sufficient).
- Care needs to be taken with assumptions made as to the status of members involved in compulsory transfers: ASIC also warn trustees that members are particularly vulnerable to changes of insurance cover and terms in relation to 'trustee-determined transfers' (such as trustee-led switches and SFTs) and that trustees therefore need to take care to ensure that default insurance arrangements in such cases are appropriate for the relevant fund's membership base. In particular, ASIC warn against trustees treating transferring members as belonging to a particular group (which may result in higher premiums or denial of cover – examples given are treating all transferring members as 'smokers' or 'blue-collar workers' by default) without good justification. Consistent with other themes, ASIC make it clear that this applies even in the absence of clear disclosure as to that classification.
- ASIC takes a broad view of the section 101 death requirement to provide reasons for decisions: While not a major focus, the Report does contain some further clues as to ASIC's expectations as to the detail trustees need to be going into when giving reasons for decisions under section 101 of the SIS Act for denied insurance claims. In particular, ASIC use the Report to suggest that an 'effective' set of reasons would 'provide enough information so that the trustee's decision making process, and the factors underlying that decision, are clear'. ASIC also suggest that providing a complainant with a list of the documents that have been considered in making a decision can be useful, as can setting out a summary of the key facts of the claim and how those facts affect eligibility to claim.
- Work still to be done on compliance with MySuper product dashboards: Consistent with separate previous review exercises, ASIC suggests that the MySuper product dashboard requirements are still not always being fully met, with particular concerns over deviations from prescribed content and a lack of prominence on funds' websites.
- Trustees should start developing communications strategies for 'vulnerable consumers': Finally, in keeping with the overall tone of the Report that trustees should be thinking about helping members over and above the mere minimum regulatory requirements, ASIC use the report to encourage trustees to begin to think about creating a communications strategy for how best to engage with what they call 'vulnerable consumers', such as those with an Indigenous background, those from a non-English speaking background, those who have poor reading, writing and numerical skills and (perhaps a little too broadly) those members who are 'disengaged'.