D14-15\155 [2015] SCTA 8 (22 January 2015)

1. The decision under review is that of the Trustee not to rollover the Complainant's full account balance in the Fund to another superannuation fund and not to refund fees and charges incurred.

2. The Trustee notified the Complainant of its decision by letter dated 8 January 2010.

1. Section 37(6) of the Complaints Act provides that the Tribunal must affirm the decision under review if it is satisfied that the decision, in its operation in relation to the Complainant, was fair and reasonable in the circumstances. The Tribunal is so satisfied.

2. It therefore affirms the decision of the Trustee.

*Copied with names deleted for public distribution.

1. The Complainant sought leave to be represented by her son. The Tribunal considered and granted this request pursuant to s 23 of the Complaints Act.

2. The Tribunal conducted the Review on the papers. Pursuant to s 32 of the Complaints Act, it requested submissions from the Parties. A submission was received from the Complainant. The submission was sent to the Trustee and a response invited. No response was received. The Trustee declined to lodge a submission under s 32 of the Complaints Act, choosing instead to rely on information previously submitted to the Tribunal.

3. All documents are retained on the Tribunal file for record purposes and were copied and distributed to the Parties before the Review meeting.

1. On 25 January 2013 the Complainant lodged a complaint with the Tribunal that the decision of the Trustee not to rollover the Complainant's full account balance in the Fund to another superannuation fund and not to refund fees and charges incurred was unfair or unreasonable for the reasons summarised in this determination.

1. Complete release of our funds immediately. 2. Complete refund of all fees withdrawing when the funds was rendered in the "illiquid" state. [sic] 3. Investigation into [the Fund] to ensure no other members are being taken advantage of. 4. [The Fund] to issue a letter detailing their actions in concise, open & honest language to all members with no technical jargon.

1. The Tribunal is satisfied from the material before it as to the occurrence of the following events which are not in dispute:

6 April 1965 - the Complainant's date of birth.

5 March 2008 - the date the Complainant joined the Fund.

1 July 2009 - the date the Trustee applied to the Australian Prudential Regulation Authority ('APRA') under Regulation 6.37 of the Superannuation Industry (Supervision) Regulations 1994 ('the SIS Regulations') to defer the processing of redemptions and benefit payments from the Balanced Accumulation Investment Strategy ('Strategy') and the Balanced Pension Investment Strategy (unless the member met a condition of release) for a rolling 90 day period from the date redemption requests are normally required to be processed.

31 July 2009 - the date of a Significant Event Notice ('SEN') issued to Fund members by the Trustee which stated:

[The Trustee], ..., has determined to defer the processing of investment switches from the Balanced Accumulation Investment Strategy and Balanced Pension Investment Strategy, to either the Conservative Accumulation Investment Strategy or Conservative Pension Investment Strategy of the Fund for a rolling ninety (90) day period from the date investment switches are normally processed.

The reason for this change is to allow time for the liquidity in the Balanced Accumulation and Balanced Pension Investment Strategies to be increased, and to ensure equitable treatment between members who remain in these strategies and those members who may transfer to another investment strategy within [the Fund].

24 August 2009 - the date of a SEN issued to Fund members by the Trustee advising them of the application made to APRA on 1 July 2009. The Notice stated that some mortgage loans within the Balanced Investment Strategies had been affected by the global financial crisis thereby impacting the overall liquidity of the Strategies. It was further stated that:

The further sale of liquid assets (such as shares) in the Balanced Investment Strategies to fund member redemptions, poses the risk that remaining members will become exposed to an unacceptable and unfair concentration of affected assets.

30 October 2009 - the date of a SEN issued to Fund members advising them that the Trustee had decided to defer processing benefit payments for all members invested in all Strategies except the Strategy for up to one month from the date on which they would ordinarily be paid. The Notice further advised that the existing deferral on payments from the Strategy would now include members who met a condition of release.

20 November 2009 - the date of a SEN issued to Fund members advising that the Trustee's application to APRA for relief was still pending and that payments from the Strategy were still deferred.

18 December 2009 - the date of an Update to SEN issued to Fund members by the Trustee advising that Member Statements and the Fund's Annual Report would be delayed.

29 January 2010 - the date of a SEN issued to Fund members advising that the Trustee had resolved to defer processing of benefit payments from the Balanced Investment Strategies until 28 February 2010.

25 February 2010 - the date of a SEN issued to Fund members by the Trustee advising that the deferral of benefit payments from the Balanced Investment Strategies would continue until 31 March 2010.

15 April 2010 - the date of a SEN issued to Fund members by the Trustee advising that the deferral of benefit payments from the Balanced Investment Strategies would continue until 31 May 2010.

4 June 2010 - the date of a Client Update issued to members by the Trustee advising that a strategy had been developed to allow the Fund to re-open and substantially remove the existing restrictions. It further advised that some of the changes would require APRA approval which had been requested. One of the changes was that the Balanced Investment Strategies would be divided into two parts, being the liquid investments and the illiquid investments. For the liquid investments, all existing restrictions would be removed. However the Update advised that:

...your illiquid portion will remain restricted and will be gradually released for normal transactions as the realisation of the illiquid assets progresses over a timeframe that could take several years.

1 July 2010 - effective this date, the Complainant's account balance was $21,948.97 with $20,734.46 in the Strategy and $1,214.51 in the Conservative Accumulation Investment Strategy.

11 August 2010 - the date of a Client Update issued to members by the Trustee advising that the estimated re-opening date of the Fund is 1 October 2010 at the earliest and confirming the strategy outlined in the June 2010 Update. The Update stated that the delay was to enable completion of the implementation of administration system and process changes and the Fund's 2010 audit.

13 September 2010 - the date of a Client Update issued to members by the Trustee advising that the Fund would not re-open before 1 November 2010 and that this date was subject to confirmation.

28 February 2011 - the date of a letter from APRA advising the Trustee that it had decided to grant portability relief for the Fund under r. 6.37 of the SIS Regulations for the period 1 June 2009 to 28 February 2011.

APRA believes, on reasonable grounds, that a rollover or transfer of an amount under regulation 6.34 would have a significant adverse effect on the interests of other members of the fund.

On the same day the Trustee issued a SEN to all members advising that the Fund would re-open effective 1 March 2011. It advised that members with investments in the Balanced Investment Strategies would have their balances split between liquid and illiquid investment strategies based on the proportion of assets held in each as at 28 February 2011.

1 July 2011 - effective this date, the Complainant's account balance was $23,789.81 with $13,148.53 in the Strategy, $4,000.19 in the Conservative Accumulation Investment Strategy and $6,641.09 in the Illiquid Accumulation.

The Member Statement included the following wording:

The asset classes held include direct mortgage loans, unlisted mortgage trusts, cash and bank term deposits originating from the Balanced Investment Strategy. The investment objective is to realise the illiquid direct mortgage loans and unlisted mortgage trusts, and to periodically distribute surplus cash to members' Balanced Investment Strategy, and to realise Illiquid Investment Strategy assets and wind-up the strategy within 5 years.

16 September 2011 - the date of a letter from APRA advising the Trustee that it had decided to grant the Fund relief from the requirements of r. 6.34(5) of the SIS Regulations for the period 1 March 2011 to 28 February 2012 as the Trustee had satisfied the criteria in r. 6.37(6). The letter noted that, although portability relief had been granted for the whole of the Fund, it was expected that the Trustee would only apply the relief to the illiquid strategies.

11 November 2011 - the date of a SEN issued to Fund members advising them that the Trustee had received formal relief from APRA to defer the payment of redemptions from or the rollover of monies invested in the Illiquid Investment Strategies until 28 February 2012.

...whilst the Trustee holds the relief, the payment of redemptions and rollovers from these investment strategies will only occur in exceptional circumstances, such as payment of death benefits, approved financial hardship payments and APRA approved payments.

The Trustee intends to make an annual application to APRA for relief until the Illiquid Investment Strategies are wound up.

16 May 2012 - the date of a partial rollover of $21,723.40 to the Complainant's requested superannuation fund comprising the amounts held in the Strategy and the Conservative Accumulation Investment Strategy.

1 July 2012 - effective this date, the Complainant's account balance was $4,676.72 all invested in the Illiquid Investment Strategy.

21 September 2012 - the date of a letter from APRA advising the Trustee that it had decided to grant the Fund relief from the requirements of r. 6.34(5) of the SIS Regulations for the period 1 March 2012 to 28 February 2013 as the Trustee had satisfied the criteria in r. 6.37(6).

APRA believes, on reasonable grounds, that a rollover or transfer of an amount under regulation 6.34 would have a significant adverse effect on:

(i) the financial position of the fund; and

(ii) the interests of other members of the fund.

December 2012 - the date the Complainant requested the rollover of her remaining balance in the Fund to another superannuation fund.

12 December 2012 - the date of a letter from the Trustee to the Complainant providing an update on the Illiquid Investment Strategy.

14 June 2013 - the date of a letter from APRA advising the Trustee that it had decided to grant the Fund relief from the requirements of r. 6.34(5) of the SIS Regulations for the period 1 March 2013 to 30 September 2013 as the Trustee had satisfied the criteria in r. 6.37(6).

30 September 2013 - the date the Fund applied for a further extension of the portability relief for the Fund under r. 6.37 of the SIS Regulations from APRA.

1. The amount of the benefit in dispute is the illiquid assets held for the Complainant in the Fund as well as fees. The Trustee has advised that the illiquid assets held for the Complainant as at 5 August 2013 were $2,925.43.

1. The Tribunal considers that the trust deed relevant to this complaint is that of the Fund in effect on the date the Complainant requested that her benefit be rolled over to another fund (i.e. 7 December 2012), being the trust deed as amended up to and including the amendment dated 5 August 2008 ('the Trust Deed').

2. The Trust Deed provisions relevant to the complaint are:

Division means any division of the Fund constituted pursuant to this Deed and a Division may have subdivisions at the discretion of the Trustee.

Strategy means an investment strategy established in accordance with Rule 6.

The Trustee may divide the Fund into Strategies and determine what forms of investment are to apply to each Strategy. If the Trustee does so, contributions to the Fund are allocated to the Strategies to which the Member or the Member's Employer has requested that the contributions be allocated. A Member has an interest in each Strategy into which contributions and other amounts have been paid for the Member.

After notifying members of affected Strategies of its intention to do so, the Trustee may merge two or more Strategies into one, split a Strategy into a larger number of Strategies or terminate a Strategy.

A Member may request the Trustee to switch amounts between one Strategy and another and the Trustee has an absolute discretion to decide whether to give effect to such a request.

The Trustee shall have complete management and control of the Fund and shall, in addition to the powers otherwise granted by this Deed and conferred on trustees by statute and general law, exercise any of the following powers:

21.1.14 generally to do all such things and perform such acts as the Trustee, in its absolute discretion, determines to be appropriate in the administration of the Fund and the performance of its obligations under this Deed.

In administering the Fund and in exercising the trusts, powers and authorities vested in it, the Trustee has an absolute and uncontrolled discretion at all times to exercise or refrain from exercising the trusts, powers and authorities.

1. TRANSFERS OF MEMBER BENEFITS BETWEEN DIVISIONS

The Trustee may in its absolute discretion but subject to the Act, transfer between Divisions, part or all of the benefits or benefit entitlements and any applicable assets and may take any other steps to carry into effect such a transfer. The Trustee must in accordance with the Act advise any persons affected by such a transfer.

1. The Tribunal noted that the Trustee operates in Victoria. Under s 19 of the Victorian Trustee Act, the Trustee has the power to compromise claims.

1. The SIS Regulations relevant to this complaint are:

REG 6.34 Rollover or transfer of withdrawal benefit

(5) Subject to subregulations (6) and (7), the trustee must roll over or transfer the amount (or the part of the amount requested to be transferred) as soon as practicable, and in any case within 30 days, after:

(a) the trustee receives a request made under subregulation 6.33(1); or

(b) if the trustee requires further information -- the time when the trustee receives all of the information that would be required in accordance with subregulations 6.33 (2), (3) and (4); or

(c) if there is a suspension under regulation 6.36 or 6.37 -- the end of the period of the suspension.

REG 6.37 Suspension or variation of obligation to roll over or transfer amounts by APRA -- application by trustee

(1) This regulation applies if the trustee of a regulated superannuation fund or approved deposit fund applies to APRA for a suspension or variation of the trustee's obligation to roll over or transfer amounts under regulation 6.34.

(2) The application must contain information about the fund's financial position and the effect of any rollovers or transfers of amounts under regulation 6.34 on:

• (a) the financial position of the fund; or

• (b) the interests of other members of the fund.

(3) APRA may ask the trustee to provide further information in relation to the application within the period specified by APRA.

(4) If the trustee does not provide the further information within the specified period, APRA may treat the application as if it had been withdrawn by the trustee.

(5) APRA must consider the application and notify the trustee of its decision in writing, within 30 days after the later of:

• (a) the day APRA receives the application; and

• (b) the day APRA receives the further information.

(6) If APRA believes, on reasonable grounds, that a rollover or transfer of an amount under regulation 6.34 would have a significant adverse effect on:

• (a) the financial position of the fund; or
• (b) the interests of other members of the fund;

APRA may, by notice in writing to the trustee, suspend or vary an obligation of the trustee under regulation 6.34.

(7) A suspension or variation under subregulation (6) applies for the period specified by APRA in the notice.

• The Fund has been allowed by law to extract monies from its member base but prohibits its member base from extracting their monies from the Fund.
  • The Fund has implemented a number of arbitrary rules to ensure it protects its bottom line.
  • The Complainant's balance continuously depletes and she cannot remove the funds.
  • The Fund's communications are over complicated.

1. The Trustee declined to lodge a submission however in correspondence with the Tribunal it was stated that:

• The SEN dated 28 February 2011 outlined the Trustee's objective for the Fund's Illiquid Investment Strategies.
  • The aim is to use best endeavours to achieve a reasonable return by realisiug over time each strategy's investments.
  • It was noted in the SEN that the Trustee has a target date of five years to distribute proceeds to members and wind up the Illiquid Investment Strategies.
  • The Fund is working progressively with mortgage fund managers to dispose of the Fund's mortgage security investments in an orderly manner to maximise the proceeds recovered over time.
  • The current conditions in the property market have been challenging and not amenable to quick disposal.
  • Therefore, the Trustee cannot rollover the Complainant's funds or refund her fees incurred while the funds were illiquid.
  • The Trustee has sought APRA portability relief which was initially granted on 28 February 2011.
  • As at 5 August 2013, the Complainant held an Illiquid Accumulation account of $2,925.43 and a Conservative Accumulation account of $407.33.

The Tribunal's role is to determine whether the decision of the Trustee not to rollover the Complainant's full account balance in the Fund to another superannuation fund and not to refund fees and charges incurred was fair and reasonable in its operation in relation to the Complainant in the circumstances. The issue is not what decision the Tribunal would have made on the evidence before it. In reaching its determination, the Tribunal took the whole of the evidence and submissions into account.

On 5 March 2008 the Complainant joined the Fund. Her account balance was predominantly invested in the Strategy.

In July 2009, the Trustee advised members that the liquidity of this investment strategy needed to be increased to ensure equitable treatment between those members who remained in the Strategy and those who requested to transfer out of the Strategy.

The Tribunal noted that, beginning July 2009, the Trustee has made a number of requests to APRA under r.6.37 of the SIS Regulations to defer the processing of redemptions and benefit payments from the Strategy on the grounds that it would have an adverse effect on the other members of the Fund.

The Tribunal further noted that APRA had granted the Trustee's requests for portability relief for illiquid investments up to 30 September 2013 but the Tribunal was unaware if APRA had granted the Trustee's latest request for further relief dated 30 September 2013.

In June 2010, the Complainant was informed that her account balance would be divided into liquid and illiquid investments and restrictions would be removed from the liquid investments. She was further advised that the illiquid portion of her benefit could take years to be released.

In May 2012, the liquid portion of the Complainant's account balance was rolled out of the Fund to her requested superannuation fund.

The Complainant has complained that her full rollover request has not been processed.

The Tribunal considered the communication material issued by the Fund concerning the problems with the Strategy. The Tribunal noted that the Complainant should have been aware in May 2012 and later in December 2012, when she lodged her rollover requests, that there were restrictions on the payment of benefits from her investment strategy as there had been many SENs issued by the Trustee to the Fund members on this topic.

The Tribunal noted that the Trustee has a fiduciary duty to administer the Fund in the best interests of all members. The Tribunal was satisfied that the Trustee decision to not allow redemptions from the Strategy, when it recognised the problems with its liquidity, was fair and reasonable in the circumstances.

In the opinion of the Tribunal the Trustee acted to safeguard the investments of all members of the Strategy rather than redeem liquid assets to pay members who wished to transfer out of the Strategy. The Tribunal considered this approach to be fair and reasonable, ensuring the assets of remaining members were not unfairly affected by reducing values and market movements.

The Tribunal noted that APRA had granted the Trustee relief from the requirements of r. 6.34(5) of the SIS Regulations for illiquid assets for the period covering the Complainant's rollover requests to 30 September 2013.

The Tribunal noted that the Trustee implemented a strategy to release the liquid portions of account balances for members wishing to transfer out of the Strategy.

While the Tribunal had sympathy for the Complainant's frustration in not being able to access her Fund balance, the Tribunal is satisfied that the Trustee has acted fairly and reasonably in the best interests of all the members with assets in the Strategy in the circumstances.

The Complainant also lodged a claim for the refund of fees and charges incurred on her account.

It appeared to the Tribunal that the Fund had not charged any fees to the Complainant's account since at least 1 July 2009. From the figures quoted by the Complainant, the Tribunal is of the opinion that the amounts about which she is complaining are the negative investment returns applicable to the strategies in which her account was invested.

The Tribunal noted that the majority of the Complainant's account had been invested in the Strategy in which over half the assets were shares and property. The Tribunal further noted that the investment objective for the Strategy, as quoted in the Fund's 30 June 2010 Annual Report, was to "achieve an earning rate over the medium to long term which exceeds the inflation rate."

The Tribunal considered that the asset allocation for the Strategy could produce either positive or negative returns in any year and had produced positive returns in the two years prior to the Complainant joining the Fund. However past performance is not a guarantee of future performance and the Tribunal is satisfied that the Complainant should have been aware that the Strategy could produce negative returns in any period.

The Tribunal considered it fair and reasonable of the Trustee not to refund the Complainant's negative investment returns.

The Tribunal noted that there were fees which were not deducted directly from the Complainant's account but were incorporated in the investment returns allocated to her account. These were the fees charged to the Trustee by the underlying managers of the investment strategies.

The Tribunal considered that, although certain investments were illiquid and unavailable for withdrawal, there still continued to be costs incurred in the management of those investments and it was fair and reasonable for the Trustee to pass on those costs to members, including the Complainant. 22. For the reasons outlined above, the Tribunal considers that the decision of the Trustee not to rollover the Complainant's full account balance in the Fund to another superannuation fund and not to refund fees and charges incurred was fair and reasonable in its operation in relation to the Complainant in the circumstances.

1. Pursuant to section 37(1)(a) of the Complaints Act, the Tribunal has all the powers, obligations and discretions of the Trustee. By virtue of section 37(3) the Tribunal, on reviewing a complaint, must make a determination:

• affirming the decision;
  • remitting the matter for consideration in accordance with the Tribunal's directions; or
  • varying the decision;

• setting aside the decision and substituting its own decision.

1. Section 37(6) of the Complaints Act provides that the Tribunal must affirm the decision under review if it is satisfied that its operation, in relation to the Complainant was fair and reasonable in the circumstances. The Tribunal is so satisfied.

2. In accordance with the requirements of sections 37(3), (4) and (5) of the Complaints Act, it therefore affirms the decision of the Trustee.