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.
Among the broad raft of reforms to the superannuation system proposed by the Australian Government in a flurry of activity, one stands out as the most controversial.
The Government is asking stakeholders if self-managed super funds (SMSFs) should contribute to the nearly out-of-control Compensation Scheme of Last Resort (CSLR).
That much is obvious from initial responses to the three different papers on the Treasury website, which were released on the same day ahead of a six‑week consultation period ending on 22 May 2026.
Looming large in the background is the collapse of the Shield and First Guardian master funds, which cost more than 11,000 consumers $1 billion-plus in retirement savings and are cited as the catalyst for this regulatory action.
Comprehensive package
Assistant Treasurer and Minister for Financial Services Daniel Mulino said the failures had highlighted the need for a comprehensive reform package.
“This includes protecting consumers as they are navigating the superannuation system, tackling high‑pressure sales tactics like lead generation and ensuring the sustainability of the Compensation Scheme of Last Resort,” he said in a media release.
A total of 17 reforms or proposals, including 29 different options, are made across the 175 pages of the three papers:
- Compensation Scheme of Last Resort (CSLR): Reform options to support ongoing sustainability
- Enhancing member protections in the superannuation system
- Curbing lead generation activity options paper.
Molino said options for protecting super members included:
- strengthening super trustee governance standards
- creating a safer framework for switching funds
- limiting or protecting members around advice‑fee deductions, and
- requiring trustees to compensate members for platform investment failures.
The consultation on lead generation looked at:
- ways to make lead generators more accountable
- strengthening unsolicited selling rules, including an option to ban unlicensed communication to consumers about super
- addressing conflicted payment structures that may incentivise misconduct, and
- disrupting harmful advertising through earlier regulatory intervention.
The paper on the CSLR focused on options to improve the predictability and structure of funding arrangements, better align the scheme as a mechanism of last resort, and enhance recoveries.]
Treasury said the Government was considering two proposals to address stakeholder concerns that SMSFs were the primary beneficiaries of the CSLR, but they did not contribute to its funding.
SMSFs are eligible for compensation from the CSLR where the trustee or beneficiary received personal financial advice and a resulting Australian Financial Complaints Authority (AFCA) determination in relation to this advice remained unpaid.
The proposals are to impose a levy only on SMSFs responsible for the compensation costs that triggered a levy, or to exclude all SMSFs from CSLR eligibility.
The leviable cohort could be determined through an opt-in or opt-out mechanism, with non-participation resulting in loss of eligibility for CSLR compensation.
SMSF complainants accounted for around 93.1% of all paid and pending CSLR as at 28 February 2026.
“Early experience with the CSLR shows that complaints lodged by SMSFs have been a major contributor of scheme costs to date,” Treasury wrote in the paper.
SMSFs unhappy
The Self Managed Super Fund (SMSF) Association called this proposal “unjust”.
“SMSFs should not be required to contribute to the funding of the CSLR, and they should remain entitled to receive compensation where conditions are met under the current framework,” Chief Executive Officer Peter Burgess said in a media release.
“In our view compelling SMSF trustees to commit to the funding of a special levy so they can retain the same rights as others to CSLR compensation, is unjust.”
It was not a view shared by the Super Members Council (SMC), which said resetting the compensation scheme would better reflect the biggest losses and risks in the system.
The SMC welcomed the Government’s proposals, which also included cracking down on harmful lead generation, banning switching advice fees and increasing governance obligations for platform trustees.
“When 12,000 Australians lose more than $1 billion of their life savings as we saw with the collapses of Shield and First Guardian, the response needs to be comprehensive to avoid future consumer harm,” SMC said in a media release.
The proposal to limit or even stop fund members from using their super funds to pay for financial advice if the advice is to switch to another fund, is aimed at preventing inappropriate switching.
If this is adopted, members would have to pay for advice out of their own pockets.
Room for improvement
But the SMC, which represents industry and other profit-to-member super funds, was not completely satisfied with the reforms, calling for a detailed review on conflicted remuneration and a refresh of official guidance.
“This is missing from the Government’s proposals and there is further work to be done,” it said.
The Financial Services Council, whose members include retail super funds, also weighed in with CEO Blake Briggs criticising what it called the Minister’s “more extreme measures” that limit consumers' ability to change funds or pay for financial advice.
“Undermining Australians’ right to control their own retirement savings through choosing a superannuation fund or accessing financial advice would not have addressed the failings in Shield and First Guardian and serves to protect incumbent funds from competitive pressure to improve their service offerings,” Briggs said.
The Financial Advice Association Australia (FAAA) responded carefully, welcoming the release of the consultation papers rather than the reforms themselves.
“We will carefully review the Government’s proposals in coming weeks and we will be engaging with our members on our responses,” said the FAAA, which has criticised the CLSR because its mostly small, privately-owned members bear most of the cost.
The consultation was also welcomed by the Association of Superannuation Funds of Australia, which complained Australia’s 18 million super fund members helped fund the scheme but could never claim from it because they may never receive personal financial advice.
“Ensuring consumers experience fewer losses in the first place is the most effective way to stop the CSLR’s costs spiralling out of control,” ASFA CEO Mary Delahunty said in a media release.
