How should super collapse safety net be funded?

The collapse of Shield and First Guardian sent shockwaves through the financial system, leaving thousands of Australians facing devastating losses potentially over $1 billion in total. 

These failures have exposed a critical weakness in the Compensation Scheme of Last Resort (CSLR), which was designed to provide a safety net for victims of financial misconduct. The scheme, capped at $250 million, is now under immense pressure as claims could surge into the billions. 

Currently, the CSLR is funded by levies on financial advisers and other industry participants. The amount of the levy relates to the losses relating to that sector. For 2023/24 the total levy was $4.8 million. But by 2025/26 this had risen to over $75 million, and 2026/27 could be over $137 million. The vast majority of these levies relate to the personal financial advice sector and don’t even include potential claims for Shield or First Guardian. 

The federal government decided late last year that, the for the first time, the levy would be extended to larger superannuation funds. However, as the Australian Financial Review (AFR) recently argued, there’s a case for extending this levy to self-managed superannuation funds (SMSFs). 

The logic behind this is that SMSFs account for around 80% of existing claims on the scheme, yet their members contribute nothing to its funding. Should those who benefit most from the safety net also help pay for it?  

The AFR suggests that SMSFs pay a modest annual levy as “bailout insurance”. This would not replace the existing levy on financial advisers but complement it, creating a broader funding base for the CSLR. 

Proponents argue that this approach is fairer and more sustainable, given the growing popularity of SMSFs and their exposure to high-risk advice. 

But not everyone agrees. Critics, including Misha Schubert from the Super Members Council (SMC), warn that the Federal Government’s current approach unfairly burdens low-income Australians. 

Under the existing plan, millions of workers - including Sue, a 54-year-old mum on minimum wage who was profiled by the AFR - will see a slice of their hard-earned super taken to cover losses caused by misconduct elsewhere in the financial sector. Meanwhile, wealthier Australians with SMSFs remain untouched. 

“This is a regressive tax if ever there were one,” Schubert argues. 

She says forcing low-paid workers to foot the bill for risky behaviour they never engaged in undermines trust in the super system and creates moral hazard. If everyday Australians in highly regulated funds pay for failures in riskier parts of the market, it emboldens misconduct and weakens accountability, she says.

National Seniors Australia (NSA) agrees with SMC on one crucial point: the real solution lies in prevention, not just compensation. 

The Federal Government must acknowledge its role in not going far enough to crack down on the misconduct uncovered by the Banking Royal Commission, handed down in 2019.

What should this look like? 

• Tougher laws to stop aggressive sales tactics and misleading promotions. 
• Cooling-off periods for switching from conventional super funds to riskier options, as suggested by ASIC chairman, Joe Longo. 
• Stronger product accountability and oversight, including performance testing for all super products (including those on investment platforms). 
• Holding wrongdoers accountable, ensuring parent companies pay for harm caused by their subsidiaries. 

These measures would help restore trust and reduce the likelihood of future collapses like Shield and First Guardian. 

As the debate continues, one thing is clear: the CSLR must be funded fairly and sustainably.

Should SMSFs, which are linked to most claims, help shoulder the cost? Or should the burden remain on advisers and low-income workers? 

We’d like to hear your thoughts through the poll, below. 

Related reading: AFR 1, AFR 2, NSA