Who will pay AustralianSuper's $27 million fine?
Australia's biggest super fund has copped a $27 million fine. Where does the money for the fine come from? And who really pays?
AustralianSuper, Australia's largest superannuation fund (by a country mile), has been hit with a $27 million fine after the Federal Court found it failed to combine multiple member accounts.
In a nutshell, over a 10-year period to March 2023, around 90,700 AustralianSuper members held duplicate accounts.
By failing to consolidate these accounts, AustralianSuper overcharged the impacted members to the tune of $69 million through multiple fees, insurance premiums and lost investment earnings.
AustralianSuper chief executive Paul Schroder, says, "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."
Even so, $27 million is a big chunk of cash, and it's natural for AustralianSuper members to wonder if they will be footing the bill through their super savings.
As the Federal Court noted in its judgement, AustralianSuper is a publicly available industry fund, so any "costs and benefits are ultimately covered or received by members".
Or, as one Reddit user put it, "Member owned, members pay".
It is the world's 16th largest retirement fund, managing more than $365 billion on behalf of 3.4 million members.
On this basis, the $27 million fine, which may sound enormous to the average worker, is relatively small potatoes for Australia's biggest super fund.
Will members miss out?
Technically speaking, the multi-million dollar fine is paid from an 'operational risk' reserve.
All super funds are required to hold this type of reserve, and at June 2024 AustralianSuper's risk reserve had a balance of $847 million. So, the fund certainly didn't have to pass a plate around the office trying to raise the cash.
Nonetheless, as profit-for-member fund, the $27 million penalty is ultimately paid by members. It's worth putting this sum in perspective given the sheer size of AustralianSuper.
If each member was asked to contribute to the fine equally, it would work out to around $8 per member.
Put differently, if that $27 million had been invested for, say, a 10% return, the gains would have boosted each member's balance by just 79 cents. In reality, AustralianSuper delivered $26 billion worth of investment returns to members last financial year.
Importantly, AustralianSuper maintains that admin fees paid by members have not been raised to cover the fine.
Is it time to change super funds?
While the Federal Court fine has attracted considerable media attention, it is barely a rap across the knuckles given the scale of AustralianSuper.
The catch is that it comes on top of an additional $4.2 million the fund is paying to compensate 7000 beneficiaries who faced delays receiving the life insurance payouts of deceased members.
Again, it's a small sum in the general scheme of things, and chief member officer Rose Kerlin has noted, "AustralianSuper is committed to putting members first but we don't always get everything right and we are sorry for that."
The trouble is that small wrongs can leave a big impression on members, and some may feel it's time to switch to a new fund - one that is making headlines for all the right reasons.
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