Last week, Rest Super service delivery manager Lachlan Ross fronted the royal commission to provide details about life insurance provided to its members by AIA Australia and the procedures Rest Super has in place around insurance.
The royal commission heard how the Retail Employees Superannuation Trust (Rest) Super previously had a prescribed minimum balance clause in its death and TPD insurance policy where members who had ceased employment with a contributing employer were subject to a prescribed minimum balance of $3,000. This cover would continue for 71 days after they ceased employment with the employer paying the contributions.
In order to keep the cover after that point, the employee needed to have an account balance of more than $3,000.
Counsel assisting Mark Costello established that a person who was employed but whose employer was not making compulsory contributions could also be caught out by this clause.
Mr Ross told the royal commission that employer was a defined term in its policy.
“Where employer is referenced in our policy, it is referenced as an employer who is making compulsory superannuation contributions to Rest on behalf of that member,” Mr Ross explained.
Mr Ross told the royal commission that Rest generally relied upon employers for information about the employment status of its members.
The commission heard about one particular claim made by a former McDonald’s employee who worked at McDonald’s between June 2005 and September 2010. The member then commenced work with another company called Swan Services after September 2010.
On 18 May 2012 the member suffered a very serious injury by falling from the fifth floor of a building and was then rendered a paraplegic.
At the time of the member’s injury, 18 May 2012, the member’s most recent annual statement was the statement for the 2011 financial year.
The commission heard that the member received an annual statement a couple of months after the injury, which contained a statement of insurance cover. The TPD benefit was listed as being $108,000, plus the withdrawal benefit, for the total of $109,550.43.
Mr Ross admitted there was no reference to the minimum balance requirement in the statement.
A claim was submitted to Rest in January 2014. The commission heard that it took until 18 July 2014 for Rest to send the member’s claim to AIA.
Mr Ross told the commission this was due to the fact its administrators were collecting relevant information for AIA to make an assessment.
AIA remitted a TPD benefit of $108,000 which was paid to Rest.
“That’s the usual process that you explained before, that Rest receives claims paid out by the insurer, and that claim is then – that amount is then deposited to the member’s superannuation account and there is then a decision taken by Rest about whether it’s appropriate to release those funds from the superannuation account,” Mr Costello questioned.
Mr Ross told the commission that the amount was not released in this case.
Rest’s administrator then sent an email to the insurer a few weeks later, which highlighted that due to “continued rules from 5 December 2010, member’s TPD and IP insurance ceased, as balance was less than $3,000”.
“The administrator, rather than doing the work of pursuing the claim for the member has identified an error to the possible advantage of the insurer and refunded the money without notice to the member?” Mr Costello questioned.
In April, a letter was sent by Rest notifying the member that the claim had been declined.
While the member was employed by Swan Services, the commission heard that Swan Services were not paying the compulsory contributions that they were required by law to have paid, with the company having gone into liquidation and owing $1.6 million to 2,466 employees for wages alone, according to evidence provided to the commission.
Mr Costello inquired why it would be assumed that the clause would operate so that the 71 days counted from the day that the member stopped working at McDonald’s.
“I don’t think it was assumed. Unless Rest has received a compulsory contribution, I can’t understand how the employer would be characterised as a Rest employer,” Mr Ross responded.
“[That] clause that creates a double detriment to Rest’s member because not only does the Rest member forgo a compulsory contribution to which there’s a legal entitlement, insurance coverage is also forgone,” said Mr Costello.
Tip of the ice berg, but the RC seems hesitant to hold the same blow torch to ISA funds as their vitolic attack on banks and direct insurers. Notice they have not once raised the issue of all the kick backs the ISA trustees and employees received via these types of arrangements, which weren’t confined to just REST. These reduced member insurance conditions resulted in higher commissions paid to those employed or in charge of the fund directly, bypassing any resulting profit from being shared with members. If this wide spread ploy by unionised funds (the guys who were previously found to be corrupt in their own RC in 2015) isn’t enough to get this supposed impartial RC to look further into them, then clearly it and Haynes & co are either inept, biased or corrupt themselves.
The claim was paid by the Insurer & REST sent the monies back to the Insurer?? I thought the Trustee had a fiduciary duty to act in the best interests of its member, not the Insurer?.
Unbelievable just another reason not to hold insurance within an industry fund Compare the Pair
So they were debiting the premiums to his account, the insurer paid, yet the trustees denied the claim. Where’s the outrage from Fairfax, CHOICE, et al about this? More interested in AMP charging less than $300 each across 4500 accounts…. AMP are obviously a much nicer target than those ‘nice’ people at Union Super….