This case discusses whether a failure on the trustee to adequately disclose how the member’s temporary salary continuance (TSC) benefit in the fund will be calculated leads to compensation. Particularly, the case discusses what occurs when the member is led to believe (due to a lack of disclosure) that he is entitled to the maximum amount available for the TSC benefit and as a result relies on this belief to his detriment.
The member ceased work on 1 May 2015 and lodged a claim for a TSC benefit. The member was covered for TSC in the fund from 12 February 2009 through an insurance policy held by the trustee with the insurer. Both the insurer and the trustee admitted his claim and payments were made for the period of 1 June 2015 to 31 January 2016. The member eventually returned to work on 1 February 2016.
The member was initially covered for a maximum monthly benefit of $6,250 per month (indexed for inflation), which later increased to $7,397.98 per month (by the time the member ceased work on 1 May 2015). However, under the relevant policy, the TSC benefit was calculated as the lesser of 75 per cent of a member’s monthly pre-disability income (PDI) at the date the member became totally disabled or the maximum monthly benefit.
This meant that the trustee and the insurer paid the member $3,844.01 per month with adjustments for inflation (being 75 per cent of $5,125.34, being the member’s monthly PDI he earned in the 12-month period immediately before he was disabled). The member says his payments should have been based on the maximum monthly benefit instead and sought the difference.
The non-disclosure of the calculation method
Importantly in this case, the methodology for calculating the TSC benefit was never disclosed to the member in materials that were sent to the member. AFCA noted that the only place it appeared was in the insurance policy and a fact sheet, which had to be accessed online or through requesting a copy, rather than being provided to the member. AFCA was of the opinion that this was not sufficient disclosure.
Additionally, the annual member statements did not provide any indication that the TSC benefit shown to the member may not actually be the amount payable should a claim be raised.
The issue in this case was not a matter of a miscalculation of the TSC benefit, in fact AFCA noted that the benefit must always be calculated in accordance with the terms of the insurance policy. According to the policy, the benefit was to be calculated using the members’ pre-disability income (PDI) rather than the maximum monthly benefit. The PDI calculation was therefore correct.
However, it was the responsibility of the trustee to disclose the appropriate method of calculating the TSC benefit to the member. The trustee argued that it adequately disclosed the TSC calculation method to the member. It insisted that the member was provided with all the necessary information to allow him to determine the amounts of cover payable and the policy terms and conditions applicable to him as a member.
Particularly, the trustee noted that the key benefits of the TSC insurance and its main features were disclosed in the PDS given to the member. The trustee stated that the PDS included a reference to a minimum and a maximum monthly insurance amount available for TSC. It indicated the amount a member could be insured for was capped and it would not in fact exceed the maximum monthly amount chosen. However, AFCA stated that the PDS itself did not outline the ‘main features’ of the TSC benefit, in that there was no mention at all of the method of calculation of the benefit. It added that the maximum and minimum amounts shown bear no relation to the members chosen maximum monthly benefit.
In fact, the only explanation as to the calculation method of the TSC benefit was in the Fact Sheet, which was not provided to the member. AFCA noted that the Fact Sheet did in fact form part of the PDS for the purposes of the Corporations Act 2001, and given it was not provided to the member ‑ and instead a member had to request it or find it online ‑ then the PDS should have mentioned the calculation method instead (or at least signposted the fact that a lesser benefit could be payable). AFCA also noted, in response to the trustee’s argument, that it is not reasonable to expect a member to access the policy to understand the nature of their benefits.
AFCA determined that the failure to do this meant it would be unfair and unreasonable not to compensate the member for the non-disclosure. Although a higher TSC benefit could be given, AFCA determined that the trustee needed to pay compensation to the member for the loss he incurred when he was not paid the entire benefit he was led to believe he was entitled to. AFCA determined in this case that it was satisfied that the member reasonably relied (as a self-employed person) on receiving the TSC benefit shown on his statements and, on balance, the member would have been eligible to receive the TSC benefit for the higher amount outside of superannuation, with the same insurer.
The determination in this case reaffirmed the decisions of the insurer and trustee to calculate the member’s monthly TSC benefit using the PDI information provided by him (and noted that the trustee was not able to pay the member a TSC benefit which exceeded a benefit based on his PDI). However it set aside the trustee’s decision not to pay compensation for his financial loss (and noted that the trustee had the power under the relevant trust deed to compromise a claim). As such, AFCA determined that the trustee was to pay the member an amount of $23,103.20 (plus interest at the Fund’s cash rate from 31 January 2016 to the date of payment) into the member’s superannuation account. This amount reflected the amount he was advised that he would receive on his member statements (less the amount he was paid the additional premiums he would have paid for the higher value policy outside of superannuation).
Case numbers: 616611 & 629578
This case also discusses a failure from the trustee to disclose important information regarding the calculation of the member’s TSC benefit, where the trustee failed to do so in a timely fashion and within the approved legislative time limits. However, it illustrates that AFCA needs the member to show that he or she has suffered a loss in order to be given compensation. It applies a ‘but for’ test in determining whether compensation is appropriate. The test in this case was ‘but for the delayed notice about the changes to the member’s TSC benefit would the member have received a higher TSC benefit’?
The change to the member’s TSC benefit occurred when he was transferred to a personal plan from an employer-sponsored plan upon ceasing employment with his employer. However, the trustee failed to disclose the changes promptly. The member says that the trustee was delayed in informing him of the changes to his TSC benefit and that if he had known of the changes sooner, then he would have made other arrangements to seek alternative insurance. The member then lodged a complaint with AFCA seeking compensation for the difference he was led to believe he could have obtained.
In this case the member had a pre-existing mental health condition but was able to work until he ceased employment with his employer on 1 October 2017. He was transferred to a personal plan by the trustee on 2 October 2017 but was not notified of the changes to his TSC benefit until 8 March 2018. From early 2018 onwards, the member’s mental health condition worsened and he claimed the TSC benefit.
In this case, AFCA noted that the trustee did provide initial disclosure to the member about what would happen when the member ceased employment, explaining to him that he would be transitioned from an employer-sponsored plan to a personal plan.
However, the trustee failed to disclose the notice about the transfer and, importantly, the changes in the calculation of the member’s new TSC benefit under the personal plan within the time limits. This was contrary to superannuation law which requires that disclosure be provided within three months of the date of the transfer.
The trustee only notified the member of the transfer to the personal plan and the effect of his insurance changes on 8 March 2018. However, the trustee had effected the transfer and changes from 2 October 2017. This meant that it was required to notify the member no later than 2 January 2018.
Nevertheless, AFCA determined that for the member to receive compensation he needed to show that, but for the delayed notice, he would have received a higher TSC benefit amount. AFCA held that it was not satisfied in this instance that the member would have in fact received a higher TSC benefit if he had sought alternative insurance. Instead, AFCA explained that the alternative insurers may have declined to cover the member or imposed conditions and loadings on the member due to his pre-existing mental health condition. AFCA affirmed the decision of the trustee not to pay any compensation because the member had failed to show that he had suffered a loss.
Case number: 606752