The Federal Government’s Compensation Scheme of Last Resort (CSLR), which began operating in April 2024, was designed as a genuine last resort for victims of financial misconduct.
The CSLR was established to pay up to $150,000 per eligible claim where the Australian Financial Complaints Authority (AFCA) rules misconduct and the responsible party – be it financial advisers, firms or product providers – collapse, becomes insolvent, or simply cannot pay.
Following a large number of payouts stemming from a series of collapsed investment funds including First Guardian and Shield that is approaching $1 billion, the Government is finding a shortfall in funding the CSLR beyond the annual caps of $250 million.
Already, industry and retail superannuation funds will contribute a ‘special levy’ over the 2026 financial year to plug the shortfall in funding for the scheme and the Government is considering extending it to the 1 million or so Australians who have self-managed super funds.
The levy could be about $150 per year, based on the number of SMSFs and the predicted shortfall in the CSLR of between $130 million and $200 million by 2027.
There is contention within the industry as to whether super funds should be called upon to fund the CSLR, given the size and scale of industry and retail funds mean members will never have to call on the CSLR because an entity has to be insolvent before the scheme can be accessed.
Approximately three-quarters of SMSFs would not be able to access the scheme either, as it is only available to people who receive bad financial advice from a licensed professional. Only about 24 per cent of SMSFs currently receive licensed financial advice based on current research.
SMSFs are also not covered by the Australian Financial Complaints Authority (AFCA) or the Australian Securities and Investments Commission (ASIC), they pay an annual levy to and are regulated by the Australian Taxation Office (ATO). If an unadvised SMSF receives bad financial advice, their only path to compensation is via the courts, which may be a costly and lengthy process.
The Government’s strategy for funding the CSLR shortfall may change in the future, however for the moment a general awareness of what could be charged to your SMSF in the future is key.
Article written by Ryan Pinkerton, R+M SMSF Manager
