Millions of everyday Australians in safe mainstream profit-to-member super funds could soon be forced to cross-subsidise a bigger share of the bill for collapses and misconduct in riskier financial services, under the latest flawed model for the consumer compensation levy - sparking urgent calls for a redesign.
The Super Members Council - which advocates for 12 million Australians in profit-to-member super - has urged the Government to instead develop a fit for purpose risk-based model to fund the consumer compensation scheme that better aligns costs with risks.
In its submission to Treasury, the Council has called on Government to rethink its proposed allocations of the 2026-27 levy - which would shift more of the costs for high-risk collapses away from the parts of the financial system where the collapses occurred and push a bigger share of that bill onto everyday working people.
"Although the Government describes this mechanism as risk-based, put plainly: it is not," the Council's submissions says.
Events like the devastating collapses of Shield and First Guardian, which were distributed mostly through a small number of for-profit super platforms, must never happen again. Almost 12,000 Australians lost an estimated $1.2 billion of their life savings which regulators allege occurred through a chain of serious misconduct and failed safeguards.
Last week, we saw ASIC take fresh legal action against one financial adviser in court filings that allege he pocketed at least $34 million in illegal kickbacks and funnelled more than 200 clients into the Shield and First Guardian funds.
There are now 17 separate court proceedings in train over the collapses of the two schemes and heightened regulatory scrutiny around participants in those arrangements.
The largest costs borne by the Compensation Scheme of Last Resort have repeatedly originated from the same type of business model: individual firms who channelled clients into related-party or high-risk managed investment schemes. Dixon Advisory, United Global Capital, and Shield and First Guardian together account for $147 million, or 87 per cent, of the 2026–27 compensation costs.
A key design principle for the scheme at the outset was that the part of the financial system from which the consumer harms and unpaid compensation orders had arisen should bear the costs of funding it.
The Government's latest proposal breaches that principle. It now proposes to force everyday Australians in safe, mainstream super funds – including most of the nation's lowest-paid workers - to pay an even bigger share of the compensation bill for failures arising in unrelated high-risk financial services.
Under the latest design proposals, the personal advice sector's Tier 1 contribution is now proposed to halve – cutting its share of the bill from $20 million to $10 million, and '"connected-sector'' recoveries are projected to fall from $87 million to $40 million (Tier 2). The Government has not published a viability assessment or any evidence supporting these changes.
As Tier 1 and Tier 2 contributions shrink, the gap is spread across trustees that had no part in these collapses. It is neither fair nor risk-based to lump mainstream profit-to-member master trusts together with for-profit platforms. They operate under different regimes, have different accountability chains and have different conduct records. The cost should be met where the failure occurred, not spread across the super system.
“We strongly support a sustainable compensation scheme, but the Government’s latest levy proposal fails the pub test,” said the Council’s CEO Misha Schubert.
“Everyday working Australians should not have their retirement savings docked to pay a bigger share of the compensation bill for collapses and misconduct in unrelated, higher-risk parts financial services.”
The Council is calling instead for Government to take a comprehensive reform approach that stops consumers being harmed in the first place, pursues recoveries first from responsible and connected parties, and only then allocates any remaining shortfall based on risk and responsibility for the underlying losses.
The Council has also called on Government to publish a clear framework for determining which activities were connected to the losses; reassess the role of super platform activity in recent unpaid compensation orders - separating it from master trust activity; and implement SMSF contributions without delay.
“A scheme described as risk-based should actually follow and reflect the relative risks. The Government has simply not explained why sectors closer to the harm would now be handed an effective discount, and why the bill pushed onto everyday Australians would rise even higher.”
ENDS
About us:
The opinions above are those of the author in their capacity as spokesperson for Super Members Council of Australia (SMC). SMC, the authors and all other persons involved in the preparation of this information are thereby not giving legal, financial or professional advice for individual persons or organisations.
Contact details:
Mike Dolan, 0474 909 471, [email protected]
