Super funds expected to pay millions to bail out financial advice compensation scheme
Super funds face a levy to bail out a federal compo scheme that’s been overwhelmed by claims from victims of dodgy financial advice – but it will only help this year’s shortfall.
The superannuation industry will be required by the federal government to pay millions of dollars to help shore up a compensation scheme overwhelmed by claims of poor financial advice.
Federal Assistant Treasurer Daniel Mulino will on Wednesday announce a special levy on the retail-facing part of the finance industry, including super funds and responsible entities, in order to meet a $47m funding shortfall for the Compensation Scheme of Last Resort.
But the major blowout – all of it due to poor financial advice – is just for the 2026 financial year, and the federal government is yet to decide how to bail out the scheme for 2027 when the funding shortfall is expected to be above $100m.
“The 2026 special levy will be spread widely across subsectors to stabilise the scheme in the immediate term and avoid overwhelming any single part of the industry,” Dr Mulino said.
“It is the responsible choice for now, but it does not fix the underlying problems that have driven the CSLR into this position so early in its life.”
The CSLR was set up in the wake of the banking royal commission to act as a last-resort support for victims of financial misconduct. It provides for a maximum payout of $150,000 if the financial firm responsible for the wrongdoing cannot pay up for reasons such as insolvency.
The scheme is funded with an industry-wide levy on financial advisers, banks and other lenders, and stockbrokers. Crucially, super funds and managed investment schemes were excluded from the levy when it was set up in 2023.
But these sectors will now be brought into the fold, at least for the short term, with super funds contributing up 12.9 per cent of the $47m shortfall and responsible entities paying 13.7 per cent. Credit providers such as banks are responsible for 15 per cent of the levy, while advice licensees will pay the most, at 22 per cent.
A financial services industry roundtable in Sydney, also scheduled for Wednesday, promises to be fiery as representatives push the minister for assurances they won’t be footing the CSLR bill for the long term.
Speaking to The Australian ahead of the meeting, industry lobby group the Financial Services Council said it would accept a short-term levy on the broader industry to fund CSLR, but that changes needed to be made to ensure the scheme was sustainable for the long term.
“Special levies are not a sustainable long-term solution. To be sustainable, the CSLR must return to being a true scheme of last resort – reserved for consumers who have genuinely lost everything and have no realistic means of recovery,” FSC chief executive Blake Briggs said.
The industry super fund lobby, the Super Members Council, last month pushed back against major funds being paying for the scheme, warning it would “escalate the moral hazard” from recent investment scandals, forcing “everyday Australians” to pay for the losses.
Anticipating the pushback, Dr Mulino said he was taking steps on the beleaguered compensation scheme that has only been fully operational since 2024.
“Early next year I will be releasing an options paper on post-implementation reform of the CSLR. It outlines the structural and technical levers available to ensure the scheme remains sustainable and operates as intended,” Dr Mulino said.
“We are committed to doing this in partnership with industry and consumer advocates.”
Following the meeting with industry, Dr Mulino is expected to announce measures to plug some of the gaping holes in the financial system that allowed $1bn of superannuation money to flow into the now-collapsed Shield and First Guardian funds.
These measures will include tackling cold calling and lead generation for financial advice, as well as the regulation of managed investment schemes, The Australian understands.
Both Shield and First Guardian were managed investment schemes that attracted about $500m of investor money apiece, largely due to lead generators who would cold call unsuspecting Australians, convince them to switch out of their established super fund and pass them on to financial advisers who would seal the deal.
The financial complaints authority has already received more than 1500 claims against the financial advice firms that pushed investors into Shield and First Guardian, with many more expected.
Most, if not all, of these will end up with the CSLR, since only one of the advice licensees involved is still in operation. The remaining licensees are all in liquidation.
Shield and First Guardian claims are expected to blow out the CSLR funding by hundreds of millions of dollars from 2027 and beyond.
To join the conversation, please log in. Don't have an account? Register
Join the conversation, you are commenting as Logout