The tug of war to resolve super complaints

There are concerns that super funds’ internal dispute resolution processes are not up to scratch as the Australian Financial Complaints Authority (AFCA) is seeing a rising number of members contacting them directly.

In 2022–23, the national complaints body reported receiving some 6,957 complaints related to superannuation, marking a 32 per cent increase on the previous year. 

While members are encouraged to first contact their fund in order to resolve a complaint via the internal dispute resolution (IDR) process, AFCA said the number of members contacting them directly is on the rise. 

Of all complaints referred back to a fund last financial year, 55 per cent were from consumers who contacted AFCA rather than their fund’s IDR team. 

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From May 2023, this percentage has increased further to 66 per cent, which AFCA has flagged as a concern.

Heather Gray, lead ombudsman for superannuation at AFCA, said: “AFCA is concerned about the rise it is seeing in superannuation complaints.

“Improving dispute resolution – and preventing complaints in the first place – is good for members and for funds.”

AFCA told Super Review a lack of engagement with IDR might indicate a “breakdown of trust” with the fund or inadequate identification of a member’s expression of dissatisfaction.

It could also be an indication that the fund is out of step with regulatory obligations regarding complaint identification and management under ASIC’s Regulatory Guide 271 (RG 271), issued in September 2021, which was designed to focus on IDR in super funds and have member complaints dealt with swiftly and efficiently.

However, drawing on trustee feedback it has received so far, law firm Piper Alderman questioned the number of complaints being referred back to the fund and noted that a fund’s AFCA fees are dependent on the number of complaints they receive. 

Under AFCA’s user-pays funding model, implemented in July 2022, all members of the AFCA scheme pay an annual registration fee. In 2023–24, this fee is $375.55 for financial firm members (including super funds). 

Members with five or fewer complaints in a financial year pay only the annual fee and from the sixth complaint onwards, they pay complaint handling fees. 

If a complaint is referred back to the fund and the fund resolves the matter, there is no AFCA complaint fee. 

Justin Untersteiner, AFCA chief operating officer, said: “Ultimately, firms – including fund trustees – have control over the fees they pay by improving their complaints handling. The user-pays approach we take incentivises firms to have efficient and effective internal dispute resolution processes, so fewer complaints come to AFCA.”

In the first year under this new funding model, AFCA has indicated that a third (32 per cent) of funds have only had to pay the registration fee. Some 3 per cent have seen fees unchanged from the previous year.

Around a quarter of super funds (23 per cent) have experienced an increase in fees from the previous year. 

Speaking to Super Review, Lisa-Marie McKechnie, partner at Piper Alderman, said: “The experience we’ve been told of is that members are lodging the complaints with AFCA and AFCA is not sending them back, so they’re pushing them through. That involves the fund paying a complaint fee [for that] when under IDR, they wouldn’t. 

“The other side to that is members’ perception that funds are not resolving these matters through IDR quickly enough, so they’re going to AFCA as AFCA has KPIs (key performance indicators) based on the number of days it takes to resolve a matter. 

“There seems to be, from the funds’ perspective, a financial incentive [for AFCA doing it themselves] which is counter to funds being profit-to-members.

“So the question is: are the IDR processes good enough in the fund? Probably not. Is AFCA being a bit opportunistic? Probably yes. And it’s probably somewhere in the middle there’s a proper process.”

Fellow partner, Kathy Neilson, suggested members may also approach AFCA if they disagree with the result of the IDR.

“Members are now more aware of what AFCA is and that they can approach it because, prior to AFCA, there were lots of different dispute resolution bodies and it was potentially more confusing for people to know where to go,” she told Super Review.

“Now it’s a bit more of a one-stop shop. I think it’s more known and people may feel more comfortable and more sure of themselves in going directly to AFCA.

“It might be that the funds feel they have concluded [the complaint] to the best of their ability, then the complainants go to AFCA, and AFCA might have sent it back, and the fund believes it’s been resolved. 

“Potentially, there’s three different points of view on [resolution]: the members’ view, the fund’s view, and AFCA’s view.”

McKechnie also highlighted her own experience as a complainant and the lag times that occur in internal resolution.

“I’ve got two issues at the moment with two [financial service providers], both of which I find myself in a position where I can’t get any resolution. I would end up having to go to AFCA, and this is basically due to a lack of resourcing in the [institutions],” McKechnie said.

“They’re not dealing with complaints quickly. You might send an email and it’s three weeks to get a response [from the fund]. That’s exactly the members’ frustrations. 

“There’s definitely a relationship between lack of resourcing, long response times, and increase in AFCA activity which is ultimately costing the members more money because it’s coming out of the fund. It’s a bit of a vicious cycle.”