The Association of Superannuation Funds of Australia (ASFA) has called for a major rethink of the Compensation Scheme of Last Resort (CSLR), warning the current framework risks forcing millions of Australians to indirectly fund failures occurring elsewhere in the financial services sector through their superannuation balances.
In its submission to Treasury’s consultation on reforms to improve the CSLR’s sustainability, ASFA said it supported the existence of a properly targeted compensation scheme but opposed arrangements that routinely require APRA-regulated superannuation funds to subsidise compensation liabilities generated by unrelated sub-sectors.
The peak body argued there was “no data suggesting undischarged compensation is an issue within the APRA-regulated superannuation sub-sector” and noted super funds already operate under strict prudential oversight and existing compensation arrangements under the SIS Act.
ASFA said members of APRA-regulated super funds effectively derive “no benefit” from the CSLR because there is little prospect an AFCA determination against a prudentially regulated super fund would go unpaid.
Despite this, the submission said APRA-regulated super funds had already been required to contribute around $6.1 million towards the scheme’s funding shortfall for 2025-26 and warned this could rise to about $13.8 million in 2026-27 under the current methodology.
ASFA also criticised Treasury’s proposed “waterfall framework”, under which APRA-regulated super funds would become part of the “final backstop payers” with potential special levy liabilities of up to $30 million per levy period.
“ASFA does not support further entrenching a funding model for the CSLR that relies upon the payment of special levies by APRA-regulated superannuation funds,” the submission said.
The organisation argued the scheme had already moved beyond dealing with exceptional “black swan” events, with large-scale financial collapses now placing sustained pressure on the compensation framework.
It pointed specifically to expected claims stemming from the collapse of Shield Master Fund and First Guardian Master Fund.
ASFA said broader consumer protection reforms proposed by the government, including measures targeting lead generation activity and stronger member protections, should eventually reduce claims flowing through to the CSLR.
However, it argued more substantial reform was required to ensure compensation liabilities were funded primarily by the sectors connected to those losses, rather than through cross-subsidisation across the broader financial system.
“As a result, we are of the view that a more substantial re-design of the CSLR should remain under active consideration, with a view to delivering a re-focused Scheme that operates sustainably,” ASFA said.
The submission also addressed the role of self-managed super funds (SMSFs), arguing SMSFs should either be excluded from both eligibility and funding obligations under the CSLR, or included in both if APRA-regulated funds remain exposed to special levies.
ASFA further suggested stronger disclosure and education requirements for SMSF trustees, including expanded trustee declarations making consumers explicitly aware they would not have access to the CSLR when establishing or joining an SMSF.
Alongside its criticism of the funding model, ASFA backed several technical reforms aimed at improving the scheme’s sustainability.
These included enabling the CSLR operator to deduct offsets from compensation payments, expanding subrogation rights and revising the treatment of counterfactual losses for financial advice complaints.
