In the Compensation Scheme of Last Resort (CSLR): Reform options to support ongoing sustainability options paper, Treasury raised the issue of SMSFs contributing to the funding of the CSLR special levies.<\/p>\n
The paper stated that under the current settings, SMSFs are eligible to receive compensation from the CSLR where the trustee or beneficiary received personal financial advice and there is a resulting unpaid AFCA determination in relation to this advice.<\/p>\n
It stated that early experience with the CSLR shows that complaints lodged by SMSFs have been a major contributor of scheme costs to date. As of 28 February 2026, cases involving SMSF complainants account for around 93.1 per cent of all paid and pending CSLR cases, representing approximately $154.14 million in compensation, of which $152 million relates to the financial advice sub-sector and Dixon Advisory.<\/p>\n
The average value of compensation awarded in complaints involving a SMSF is also materially higher than that awarded to non-SMSF complaints ($130,186 and $75,980 respectively). Most financial advice-related misconduct cases to date involve the provision of investment advice to SMSFs (87.29 per cent), followed by advice in relation to MISs (5.51 per cent).<\/p>\n
\u201cAn individual may receive financial advice regarding the establishment of an SMSF and advice on the investment strategy of the SMSF (both at establishment and during the SMSF\u2019s operation),\u201d the paper stated.<\/p>\n
\u201cStakeholders have raised concerns that SMSFs do not currently contribute to the funding of CSLR special levies (in contrast to APRA-regulated superannuation funds) despite having been, to date, the primary beneficiaries of the CSLR.\u201d<\/p>\n
The paper continued that a key policy question is whether SMSFs should contribute to support CSLR special levy funding pressures, and if so, how their inclusion should be scoped in a way that improves sustainability, reflects the experience of the scheme, and represents sound policy design.<\/p>\n
Treasury is seeking stakeholder feedback on two options to address the treatment of SMSFs in the CSLR framework.<\/p>\n
Option one is to include a subset of SMSFs within the CSLR special levy framework as a potential connected sub-sector. Under this approach, leviable SMSFs could be levied where a special levy is needed and SMSFs are identified as connected to the costs enlivening the levy.<\/p>\n
\u201cWhere SMSFs are identified as connected, the levy would reflect their proportionate connection, up to the special levy cap for the levy period ($40 million per connected sub-sector),\u201d the paper stated.<\/p>\n
\u201cThe leviable cohort could be determined through an opt-in or opt-out mechanism, allowing SMSFs to choose whether to participate in the levying framework, with non-participation resulting in loss of eligibility for CSLR compensation.\u201d<\/p>\n
The second option is to exclude all SMSFs from eligibility for CSLR compensation. Under this approach, SMSF trustees and other persons acting for the fund would continue to have access to AFCA\u2019s dispute resolution processes but would be unable to receive compensation under the CSLR for an unpaid AFCA determination relating to losses suffered by the SMSF.<\/p>\n
\u201cThis exclusion would mean that SMSF trustees cannot receive CSLR compensation to the extent their complaint seeks redress for losses suffered by their SMSF and would also extend to exclude prospective trustees that receive advice to establish an SMSF in their personal capacity,\u201d it stated.<\/p>\n
It added that under option one, SMSFs would be able to either opt-in or opt-out of participation in the scheme, and self-select whether they choose to pay the cost of the special levies based on their assessment of any potential benefit from access to the scheme in the future.<\/p>\n
\u201cIt is expected that SMSF trustees who have not and do not intend to receive financial advice would elect to not contribute to the scheme,\u201d it stated.<\/p>\n
\u201cWhile SMSFs are not providing a product or service to consumers, SMSFs have member-trustees who make investment decisions about their own retirement savings \u2013 levying them would reflect the responsibilities and increased risk exposure SMSF trustees choose to take on by moving their superannuation into the self-managed environment.\u00a0<\/p>\n
\u201cIt provides the SMSF sector a pathway to \u2018insure\u2019 the governance risks in the sector by facilitating their contribution to CSLR costs to support its ongoing sustainability.\u201d<\/p>\n
Industry response<\/p>\n
Peter Burgess, SMSF Association CEO, said 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.<\/p>\n
\u201cIn 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,\u201d Burgess said.<\/p>\n
\u201cEquitable treatment across the superannuation system is essential. Whether an individual invests via an APRA fund, managed account, or SMSF, they should be entitled to the same consumer protections under the CSLR.<\/p>\n
\u201cOur superannuation system is built on member choice, and no investor should be disadvantaged simply because they choose to manage their own fund.\u201d<\/p>\n
Burgess added that many SMSF investors are retail clients, and they should be treated as such.<\/p>\n
\u201cWhere AFCA has jurisdiction to make a determination and does so in favour of the SMSF trustees or members, it is entirely appropriate that they are also entitled to compensation where that determination is not paid,\u201d he said.<\/p>\n
\u201cOur focus should be on those who are not acting in their clients\u2019 best interests and getting the policy and regulatory setting right. Not punishing the victims by denying them compensation or requiring them to pay a fee to qualify for compensation.\u201d<\/p>\n
The Super Consumers Australia called on the government to focus its response to the Shield and First Guardian collapses on reforms that will actually protect people, warning against ineffective measures and those that will harm victims.<\/p>\n
Xavier O\u2019Halloran, CEO of SCA, said the sector needs reforms that focus on preventing harm before it occurs.<\/p>\n
\u201cDodgy lead generation sales practices allowed the harm to spread at an industrial scale. Disrupting this business model should be the highest priority. The most effective way to do that is to target their revenue by banning switching fees being paid from super,\u201d he said.<\/p>\n
\u201cThis needs to be coupled with stronger trustee obligations, and requirements for trustees to fund compensation to victims when they fail to protect their members from harm. Consumers expect trustees to act as gatekeepers. Creating incentives for them to do their job will support a safer system.\u201d<\/p>\n
SCA said the government should abandon the option which would see people lose access to compensation.\u00a0<\/p>\n
\u201cThe proposal to remove the \u2018but for test\u2019 is deeply unfair and undermines a basic tenet that people should be compensated for losses that flow from misconduct,\u201d O\u2019Halloran said.<\/p>\n
\u201cThe right way to address sustainability is to stop harm from occurring in the first place and make it easier to ensure those responsible pay. Cutting off compensation to victims who have seen their retirement savings destroyed is a counter-productive policy outcome.\u201d<\/p>\n
The Association of Super Funds Australia said the recommendations address two interconnected problems: the conduct that has left consumers exposed to significant losses from certain financial services products, and the explosion of the cost of the CSLR.\u00a0<\/p>\n
Mary Delahunty, ASFA CEO, said ensuring consumers experience fewer losses in the first place is the most effective way to stop the CSLR\u2019s costs spiralling out of control.<\/p>\n
\u201cUnregulated lead generators, aggressive sales tactics, and conflicted financial advice have caused real consumer harm. Better licensing, more time for funds to check the safety of transactions, and stronger advertising frameworks will be much-needed guardrails,\u201d Delahunty said.<\/p>\n
\u201cThe vast majority of Australians have their super savings in a safe, tightly regulated system. But today\u2019s announcements address activity on the edges of this safety zone. We welcome protective barriers where we can see warning signs of danger to consumers\u2019 financial wellbeing. Prevention is better than compensation.\u201d<\/p>\n
The Super Members\u2019 Council said when SMSFs account for about 80 per cent of existing claims on the CSLR scheme relating to advice in that sector, ensuring they can only claim from it if they help support it will make it fairer and more sustainable.\u00a0\u00a0<\/p>\n
Georgia Brumby, the council\u2019s acting CEO said it strongly opposes pushing the bill for the compensation scheme\u2019s blow outs onto ordinary Australians who have chosen the safeguards of the highly regulated super system, but the proposed changes will make the scheme more sustainable.<\/p>\n