Super Nation is a fortnightly column that examines, explains and analyses key issues in one of Australia's largest, fastest-growing and most important industries: superannuation.
As an announcement, it probably came as no surprise, but the hammer blow was no less powerful.
The levy to fund Australia’s financial compensation scheme had blown out by 44%, or A$60.6 million (US$41.9 million), compared with its previous estimate only months earlier.
Just as relevant was that the $198.1 million revised levy for the Compensation Scheme of Last Resort (CSLR) for the 2027 financial year (FY27) dwarfs the ‘cap’ of $20 million.
Almost everyone agrees the Scheme is unsustainable and appears more like a first responder than the last resort in its name.
This comes as Treasury considers feedback from consultation about proposed reforms to make the Scheme more sustainable.
Collapses drive claims
The CSLR expects to process 1,567 claims in FY27, up sharply from 912 in its initial forecast, according to this statement.
It reflects a 71% surge in compensation payments driven mainly by the long tail of the Dixon Advisory & Superannuation Services collapse, and the first wave of claims tied to the Shield Master Fund and First Guardian Master Fund losses.
The personal financial advice sub-sector continues to carry most of the weight with its contribution now forecast at $190.3 million, up from $126.9 million, and a burden the Financial Advice Association of Australia (FAAA) called “unsustainable”.
CLSR CEO David Berry pointed out that since the initial estimate of $137.5 million was published in November, details had emerged of the potential size and scale of compensation for Shield and First Guardian victims.
He said the CSLR had paid more than $200 million in compensation to more than 1,600 people, most related to defective personal financial advice and in many cases only partly compensates them for loss of savings.
Big super rejects levy
The Super Members Council (SMC), which represents large industry and other profit-to-member superannuation funds, has criticised proposals being considered by Treasury to require super funds to pay the levy for the first time.
”If safe, highly regulated parts of the system foot the bill for unrelated misconduct elsewhere, it can only further incentivise misconduct,” SMC said in a media release.
It left no doubt where it believed the wider funding net should be cast, pointing the finger squarely at self-managed super funds (SMSFs) and super platforms.
CEO Misha Schubert said the system was being hit by a “tsunami of unpaid compensation orders”, arguing that prevention was preferable to the sharing the burden of funding compensation to victims of financial mis-management.
The scale of the new forecast once again highlighted the utmost urgency for the Government to progress its long promised Delivering Better Financial Outcomes (DBFO) reforms to make advice more affordable, accessible and higher-quality.
They include allowing super funds to provide more personal advice rather than just ‘intra-fund’ advice related to members’ super accounts which is collectively charged to all members.
The first tranche of DBFO reforms received Royal Assent in July 2024 but the second and third tranches have not been introduced to the Parliament.
“Each day of delay is a day that leaves Australians exposed to safety risks, with the affordable advice gap making consumers more vulnerable to lead generation and high‑pressure sales to switch into riskier schemes,” Schubert said.
Government urged to pay
The SMSF Association, which includes financial advisers among its members, has rejected suggestions they be required to pay the levy.
It also called for managed investment schemes (MISs) to be brought into the funding base and for the Government to share responsibility for funding the shortfall.
It said consumers should have access to financial compensation where they suffered financial loss from poor or negligent financial advice or product failure.
“But holding a sector accountable for the failures of firms that intentionally prioritise profit to the detriment of their clients is both unsustainable and unjust,” SMSF Association CEO Peter Burgess said in a press release.
The FAAA called the latest levy an “unsustainable burden” for financial advice practices and urged the Government to cap the levy at $20 million pending a sustained increase in adviser numbers.
“This will ensure Australians do not miss out on the advice they need,” FAAA General Manager Phil Anderson said in this media release.
The financial advice profession consisted mainly of small and micro businesses with little ability to absorb additional significant costs, and many were considering leaving the profession and abandoning recruitment.
The Stockbrokers and Investment Advisers Association (SIAA) argued the CSLR should stop compensating investors for hypothetical "but for" losses and instead focus solely on actual capital losses to make the scheme more sustainable.
“The CSLR must be fundamentally re-designed. Now that the scheme is in its third year of operation, its shortcomings are obvious,” SIAA CEO Maria Lykouras said in a media release.
