The royal commission heard how the Retail Employees Superannuation Trust (Rest) Super previously had a prescribed minimum balance clause in its death and TPD insurance policy where members who had ceased employment with a contributing employer were subject to a prescribed minimum balance of $3,000. This cover would continue for 71 days after they ceased employment with the employer paying the contributions.

In order to keep the cover after that point, the employee needed to have an account balance of more than $3,000.

Counsel assisting Mark Costello established that a person who was employed but whose employer was not making compulsory contributions could also be caught out by this clause.

Mr Ross told the royal commission that employer was a defined term in its policy.

“Where employer is referenced in our policy, it is referenced as an employer who is making compulsory superannuation contributions to Rest on behalf of that member,” Mr Ross explained.

Mr Ross told the royal commission that Rest generally relied upon employers for information about the employment status of its members.

The commission heard about one particular claim made by a former McDonald’s employee who worked at McDonald’s between June 2005 and September 2010. The member then commenced work with another company called Swan Services after September 2010.

On 18 May 2012 the member suffered a very serious injury by falling from the fifth floor of a building and was then rendered a paraplegic.

At the time of the member’s injury, 18 May 2012, the member’s most recent annual statement was the statement for the 2011 financial year.

The commission heard that the member received an annual statement a couple of months after the injury, which contained a statement of insurance cover. The TPD benefit was listed as being $108,000, plus the withdrawal benefit, for the total of $109,550.43.

Mr Ross admitted there was no reference to the minimum balance requirement in the statement.

A claim was submitted to Rest in January 2014. The commission heard that it took until 18 July 2014 for Rest to send the member’s claim to AIA.

Mr Ross told the commission this was due to the fact its administrators were collecting relevant information for AIA to make an assessment.

AIA remitted a TPD benefit of $108,000 which was paid to Rest.

“That’s the usual process that you explained before, that Rest receives claims paid out by the insurer, and that claim is then – that amount is then deposited to the member’s superannuation account and there is then a decision taken by Rest about whether it’s appropriate to release those funds from the superannuation account,” Mr Costello questioned.

Mr Ross told the commission that the amount was not released in this case.

Rest’s administrator then sent an email to the insurer a few weeks later, which highlighted that due to “continued rules from 5 December 2010, member’s TPD and IP insurance ceased, as balance was less than $3,000”.

“The administrator, rather than doing the work of pursuing the claim for the member has identified an error to the possible advantage of the insurer and refunded the money without notice to the member?” Mr Costello questioned.

In April, a letter was sent by Rest notifying the member that the claim had been declined.

While the member was employed by Swan Services, the commission heard that Swan Services were not paying the compulsory contributions that they were required by law to have paid, with the company having gone into liquidation and owing $1.6 million to 2,466 employees for wages alone, according to evidence provided to the commission.

Mr Costello inquired why it would be assumed that the clause would operate so that the 71 days counted from the day that the member stopped working at McDonald’s.

“I don’t think it was assumed. Unless Rest has received a compulsory contribution, I can’t understand how the employer would be characterised as a Rest employer,” Mr Ross responded.

“[That] clause that creates a double detriment to Rest's member because not only does the Rest member forgo a compulsory contribution to which there’s a legal entitlement, insurance coverage is also forgone,” said Mr Costello.