Labor’s “morally wrong” proposed change to self-managed super funds has incensed the sector as Australia mulls a blowout at the Compensation Scheme of Last Resort.
Treasury released a paper on Wednesday introducing an opt-in mechanism for SMSFs, meaning they can pay a levy to be covered by the CSLR.
The CSLR is designed to help victims of financial misconduct and can provide upwards of $150,000 to eligible consumers.
This change drew backlash from SMSF Association chief executive Peter Burgess who noted that no other sector of the finance industry was forced to pay a levy.
“What they did announce in the consultation paper yesterday is this proposal – that unless an SMSF trustee agrees to pay a levy, then they will forfeit their rights to be able to claim against the compensation scheme in the future,” Mr Burgess told Business Now.
“Now we think that’s wrong. That’s morally wrong to say to SMSF trustees that unless you agree to pay a levy, then you forfeit your right to be able to claim under this scheme.”
The scheme is covered by four subsectors: financial advisers, credit providers such as banks or credit card companies, credit intermediaries such as mortgage brokers and securities dealers such as investment banks.
It has an annual levy capped at $20m on each subsector, however, the Financial Services Minister can impose a special levy to spread the cost of the CSLR.
Mr Burgess also argued that most SMSF owners will choose to opt out of the scheme.
This would leave the CSLR with a small number of SMSF participants and force them to pay higher costs.
“We’re going to be left with a very small number of SMSFs participating in this scheme, which means that if there is a levy that is imposed on this pool of a small number the levies are likely to be substantial,” Mr Burgess said.
“Which means that these SMSFs are going to be paying a disproportionate share of this compensation, which again, we don’t think is viable.”
To be covered by the CSLR, an entity needs to receive advice from a group that is regulated by the Australian Financial Complaints Authority.
Yet less than 27 per cent of those with an SMSF used a financial adviser in the 2024 financial year, according to SMSF software company Class.
Financial Services Minister Daniel Mulino on Thursday explained the logic behind the changes to the CSLR by pointing to last year’s special levy.
“Last year it was a special levy of $47m and that related to a number of collapses in relation to personal financial advice,” Mr Mulino told Business Now.
“The financial advice sector had to stump up $20m and then on top of that we had to figure out where do you allocate the rest of the $47m.
“In the end we made a determination to levy that on all retail-facing sectors because we were conscious that if we just levied that on financial advisors because that would have been a huge burden.”
The changes come as the CSLR stares down the massive collapse of First Guardian and Shield, where Australians lost more than $1b.
Shield and First Guardian were both wound up in April last year, while the Australian Securities and Investments Commission blocked new investments into Shield from early 2024 and into First Guardian in February 2025.
The two funds promised high returns for investors with stable and diversified products but ultimately left thousands of victims panicking over their nest egg.
First Guardian victims were dealt a blow in December when it was revealed just $1.6 million had been recovered from the $450 million invested in the collapsed fund.
Meanwhile, hundreds of Australians have tapped Financial Dispute Legal to receive compensation after losing $160m in Australian Fiduciaries Ltd’s collapse.