Australia's biggest super fund hit with $27 million fine

AustralianSuper has been fined $27 million after the Federal Court ruled the country’s largest superannuation fund breached the law when it overcharged tens of thousands of members $69 million.

Federal Court Justice Lisa Hespe found the industry giant employees knew almost 10 years ago it should have merged members’ duplicate accounts, but failed to act in their best interests by moving to resolve the issues as a result of “systemic deficiencies extending over a long period of time”.

About 90,000 AustralianSuper members were affected between July 2013 and March 2023, costing them $69 million in avoidable fees, multiple insurance premiums and lost investment earnings. The $365 billion fund has since remediated members.

“AustralianSuper was aware that beneficiaries had active multiple accounts and that having multiple accounts imposed a financial detriment on affected members,” Justice Hespe ruled on Friday morning.

“There were no rules, processes or procedures which required AustralianSuper as trustee to consider on a regular basis whether the merging of multiple accounts would be in the best interests of members and if so, to merge those accounts if practicable.”

In 2015, an AustralianSuper analyst asked a manager what the financial benefit of merging members’ accounts would be. The manager replied: “It benefits the member by stopping the $1.50 charge on their dup [duplicate] acc [account] but for us it means less revenue (and if we stupidly back date it for years then we lose more revenue) i dont [see] what benefit it has for us other than goodwill to the member and so we dont lose them to the ato [Australian Taxation Office] if the account is inactive and small”.

It took AustralianSuper staff three years to escalate the issue to then-chief executive Ian Silk and Paul Schroder, who was group executive of product brand reputation at the time. Schroder is the current chief executive of AustralianSuper.

A joint investigation by the Australian Securities and Investments Commission (ASIC) and Australian Prudential Regulation Authority (APRA), which took the matter to court in 2023, found the fund did not take adequate steps to resolve the issues until late 2021.

“Some of the internal correspondence (such as the email from April 2015) suggested that some within AustralianSuper lost sight of the fact that AustralianSuper was required to act in the best interests of individual members when considering the merger of multiple accounts, rather than seeking to hold on to as many accounts as possible,” Justice Hespe handed down in her judgment.

“Such correspondence is demonstrative of a lack of appreciation of the gravity of the conduct and a fundamental lack of understanding of the obligations and duties of AustralianSuper.”

The fund has been ordered to pay $27 million in fines, and the legal costs of the regulators, capped at $500,000. Justice Hespe also ordered AustralianSuper to publish a notice on its website about the Federal Court judgment for at least three months.

In a statement, Schroder said the fund had self-notified the issues to ASIC and APRA in December 2021.

“We found this mistake, we reported it, we apologised to impacted members, we compensated them, and we’ve improved our processes to prevent this happening again,” he said.

“Multiple member accounts are a problem across our industry, and for several years our process wasn’t comprehensive enough to meet our obligations to members. We’ve fixed that now, and we continue to review and improve our services, so we provide members with the support and guidance they expect and deserve.”

ASIC deputy chair Sarah Court said the penalty reflected the severity of misconduct by Australian Super.

“This was exacerbated by a systemic failure to escalate and remediate the issue once it was identified,” Court said in a press release.

Given AustralianSuper is a not-for-profit industry fund, members will effectively be slugged with paying the fine. AustralianSuper said it had made provisions for a penalty in its 2023-24 accounts, and member fees would not be increased to cover the penalty.

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