Slater and Gordon announced this morning an unprecedented wave of lawsuits on behalf of around one in three Australian workers believed to have
The law firm will allege super funds ripped off some customers by thousands of dollars by parking their cash with the parent bank — rather than the bank that offered the best interest rate — and charging excessive fees.
The first lawsuit will be against and CommBank-owned Colonial First State and AMP, with up to 18 further class actions expected to “snowball” against bank-owned and retail funds.
“What funds like Colonial First State have been doing is dumping super with a parent bank such as CommBank,” said Slater and Gordon head of class actions Ben Hardwick.
“The interest from the parent bank is so low that investors in the cash option are receiving rates as low as 1.25 per cent a year. This is even below the RBA cash rate. This rate of return is ludicrously low.”
Most banks offer customers with term deposits around 2-2.5 per cent and “that’s what industry super fund members and some retail fund members have been getting”.
As one example, “Theo” has $25,000 in a cash investment option of a big-bank-owned super fund, which deposited that cash with its parent bank. Over five years, the investment grew by $1812 after fees.
Over the same period, “Jane” had $25,000 invested with an industry fund which spread that cash with a range of banks. Her investment grew by $3406.
On a balance of $50,000, Theo would be $3186 worse off than Jane, and on a balance of $150,000, the difference would be $9559. Slater and Gordon
There are an estimated 28.6 million superannuation policies held by 14.8 million Australians. The $2.6 trillion industry represents on a fifth of the wealth of all Australian households — retirement savings are second only to the family home by value.
About 55 per cent of superannuation policies, or 8.2 million, have at least one retail account and it is believed that almost all of these would have some cash component. Slater and Gordon estimate the landmark lawsuits could get some account holders as much as $3000 back and end up costing the banks more than $1 billion.
It comes after a Productivity Commission report earlier this year raised serious concerns about the “$2.6 trillion unlucky
The PC said the super system’s “two fundamental flaws” were members accumulating unintended multiple accounts — leading to billions of dollars each year in unnecessary fees and insurance premiums — and “entrenched underperformance” by some default super funds.
Slater and Gordon’s lawsuits, which even with a conservative five million sign-ups would dwarf the 150,000 involved in the class action against bank fees and the 10,000 for the Black Saturday bushfires, stem from evidence uncovered by the Financial Services Royal Commission last month.
This exchange in particular between AMP Super chairman Richard Allert and counsel assisting Michael Hodge QC is the one that let the cat out of the bag.
HODGE: What are the products of the superannuation funds that you can recall have underperformed?
HODGE: You seem to be referring to a situation where you have read the newspaper and identified that an AMP product is underperforming compared to a comparative peer product. Is that right?
HODGE: And can you recall that
HODGE: And in relation to what product did that happen?
HODGE: And there was an issue that was raised with the board as to the underperformance of cash?
HODGE: Was Super Directions Fund the fund in which cash performed worse?
HODGE: Because it has managed to generate negative returns on cash for three years?
HODGE: Do you know why there are negative net returns in cash?
HODGE: Have you made any inquiries to understand what return on cash is generated
HODGE: And does that suggest to you that AMP’s return on cash will remain uncompetitive?
HODGE: You know that there are other superannuation funds, and certainly at least some industry funds, that would be paying a higher return on cash?
HODGE: Well, even if you weren’t investing it in a term deposit, if you just invest it in an
HODGE: Why is it that a member who puts their retirement savings with AMP — with NM Super and has those retirement savings invested 100 per cent in cash ends up with a substantially lower return than if they had just invested their retirement savings in an
HODGE: I would have to ask who, sorry?
HODGE: Your point is why are they foolish enough to invest their superannuation with AMP?
HODGE: But isn’t that your point?
HODGE: Is it possible, if they’re in the Super Directions for
HODGE: So the member has ended up in the fund in the product. There’s still an obligation on you, as the trustee, isn’t there, to act in the best interests of the members?
HODGE: And wouldn’t one way in which you would go about discharging your duty to act in the best interests of the members be to attempt to lower the fees on cash to produce a competitive return?
A spokesperson for AMP said it was committed to acting in the best interests of superannuation customers, and in accordance with legal and regulatory obligations.
“We encourage any customers who have concerns to contact AMP directly.
“While we have not been served with any proceedings at this stage, we understand the proposed Slater & Gordon class action may be related to issues in our superannuation business that we previously identified and reported to the regulator.
“As we set out in our submissions to the Royal Commission, we are already fixing these issues and remediating customers.
“We have reduced the administration fees on some of our cash investment options to address the issue of negative returns in the small number of funds impacted by this issue. We are also compensating affected customers for lost earnings.
“In July, we also announced that we are cutting fees on our flagship MySuper products, benefiting around 700,000 existing customers as well as new customers, improving member outcomes.”