The Super Members Council (SMC) has warned against expanding the funding burden of the Compensation Scheme of Last Resort (CSLR) onto millions of Australians in APRA-regulated superannuation funds, arguing the costs should remain with the sectors responsible for consumer harm.
In a submission to Treasury’s consultation on proposed CSLR reforms, the industry body said the scheme risked straying from its original purpose as a genuine last-resort compensation mechanism by shifting costs onto members of “safe, well-regulated” super funds.
“This should be a fair, sustainable compensation scheme of genuine last resort that doesn’t double-tax hardworking Australians in safe, well-regulated parts of the super system — not one that socialises the cost of financial misconduct to the nation’s lowest-wage earners instead of holding the people responsible to account,” said SMC chief executive Misha Schubert.
The council noted the CSLR was originally designed to compensate victims of financial misconduct only after all avenues to recover losses had been exhausted, with costs borne by the part of the financial system where the misconduct occurred.
However, it argued the scheme has come under increasing strain following a series of financial advice firm and managed investment scheme collapses.
According to the submission, the collapse of a single financial advice firm exceeded several years’ worth of original actuarial forecasts for the scheme’s total costs, while claims linked to the Shield and First Guardian collapses are expected to add further pressure.
SMC said expanding levies to sectors that did not cause the underlying misconduct would undermine a key principle of the scheme and create moral hazard by weakening accountability for firms operating in higher-risk parts of financial services.
The council also criticised a one-off special levy imposed last year, which required members of APRA-regulated super funds to contribute towards the scheme’s rising compensation costs.
Its submission highlighted that around 12 million Australians in mainstream super funds paid the levy, while self-managed super fund (SMSF) members did not.
Under the Treasury’s current consultation, SMSFs could potentially be given the option to opt in or out of both paying the levy and accessing compensation, while members of APRA-regulated funds would continue to contribute.
“It would be deeply unjust for the Government to compulsorily force millions of the nations lowest-paid workers to pay a levy for this scheme they will never claim on but then give wealthier Australians with SMSFs a choice to opt in or opt out that no-on else gets,” Schubert said.
To improve the sustainability of the CSLR, the council called for the proposed levy waterfall model to be scrapped and replaced with a framework more closely aligned to the sources of consumer harm.
It also urged the government to exclude APRA-regulated super funds from the funding base, include managed investment schemes in levy arrangements, and ensure SMSFs are treated consistently through either full exclusion or mandatory participation.
“The scheme is now being flooded by a tsunami of compensation bills that should have been paid by the collapsed firms and schemes who lost Australians’ life savings and then left them in the lurch,” Schubert said.
“Prevention is always better than clean-up. Nothing short of large-scale consumer safety reforms that comprehensively lift the bar on consumer safety will stop continuous flooding of the scheme. Merely tinkering around the edges on safety will only lead to more Shield and First Guardian style collapses.”
