Law firm Slater and Gordon will launch a series of class action lawsuits against retail super funds that haven’t been paying high enough returns on cash investments.
The firm says its ‘Get Your Super Back’ campaign will bring big bank-owned super funds to account, estimating that the funds owe over a billion dollars to Australians.
“Slater and Gordon will take on the banks on behalf of millions of Australians whose super funds may have been gouged by bank-owned super funds lining their pockets, through a series of class actions,” said an announcement by the firm.
Colonial First State – owned by the Commonwealth Bank – and AMP super will be the first targets of a “series of legal actions”.
“The firm will allege the big bank-backed super funds failed to obtain for members competitive cash interest rates on cash option funds, and charged exorbitant fees, affecting millions of members who held part or all of their superannuation in bank owned funds.”
Slater and Gordon says the allegations have arisen from evidence before the Banking Royal Commission.
The firm expects that up to one-third of adult Australians may be eligible to join the class actions.
Slater and Gordon Head of Class Actions Ben Hardwick said the, alleged, “fee gouging” and paying of “un-competitive interest rates” may have set back the quality of retirement for many Australians.
“This means that millions of Australians may be out of pocket and a handful of banks have lined their pockets,” he said.
“Slater and Gordon doesn’t think that’s fair and we are saying, enough is enough.”
Hardwick said that bank-owned funds like Colonial First State had been “dumping” super with their parent bank, which then paid interest as low as 1.25% per annum.
“This is even below the RBA cash rate. This rate of return is ludicrously low. Standard bank interest should be around 2.0 to 2.5 per cent,” he said.
“That’s what most banks offer to ordinary customers with their normal term-deposits. And that’s what industry super fund members and some retail fund members have been getting.”
“We don’t believe there is any justification for a bank-owned fund member being worse off than industry fund members, especially when they have chosen to invest in a passive cash investment option, which requires the fund to do basically nothing.”
Slater and Gordon believes that retail super fund members should be compensated for the difference between the return on cash they received and the return they “should have received if the trustee had done their job properly”.
“Industry funds have demonstrated the return that should be produced on cash investments when a proper effort is made by the trustee to secure the best available interest rate,” Mr Hardwick said.
“On our calculations, fund members of Colonial and AMP combined have lost over a half billion dollars from their superannuation accounts. This will fundamentally degrade their retirement. We intend to bring class actions to recoup as much of this money as we can.”
Hardwick said that when members entrust someone to manage their super they expect that job will be in the hands of someone they can trust.
“Some of the bank-owned super funds have broken this trust with Australians. It’s been about lining their own pockets: about propping up their profits and undermining the entire scheme,” he said.
Senior Associate Nathan Rapoport said the legal claim could be extended to cover any super fund with a cash component that was invested with a parent entity in the same manner as Colonial First State.
“The potential damages from an extended claim would be very substantial, as it could encompass the vast majority of fund members,” said Mr Rapoport.
Other potential class actions will focus on excessive fees, looking to “claw back the difference between the fees charged and what a trustee acting in the best interests of members would have charged,” said Slater and Gordon.
“It’s about time we stood up and said Australians are sick of being taken for a ride,” said Mr Hardwick.
“We’re happy the Royal Commission has exposed these dodgy practices, but we don’t believe exposure is good enough.”
“We now think it’s time that Australians got their super back from the big banks.”
Slater and Gordon said it was working with litigation funding companies to provide financial support for the class actions.
A statement by AMP, after the announcement by Slater and Gordon, said: “We’re committed to acting in the best interests of our superannuation members at all times and acting in accordance with our 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 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.”
AMP said it had reduced the administration fees on some of its 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,” said AMP.
Commonwealth Bank said that it was aware of the announcement. But that it, or its subsidiaries, “have not been served with any legal proceedings”.
“CBA will keep the market informed of developments,” said the, short, statement.