Super funds should not be asked to fund the CSLR: ASFA

The Association of Superannuation Funds of Australia (ASFA) said Australia's Compensation Scheme of Last Resort (CSLR) is the only scheme of its kind worldwide funded from the retirement savings of people who cannot claim from it, and that needs to change immediately.

In a new whitepaper titled Building a Sustainable Compensation Scheme of Last Resort - benchmarked by Marsh Risk Consulting - ASFA argued the CSLR is falling behind similar policies enforced across the UK, the US and Europe.

In the schemes Marsh examined, the sectors that generate investor losses are the sectors that fund the compensation, which is not the case in Australia.

Despite accounting for almost all (96%) compensation the CSLR has paid, the personal financial advice sector has only contributed 84% of its funding. ASFA acknowledged it would be "impossible" for financial advisers to fund 100% of compensation claims, as it would put small advice firms out of business, but said the funding should not be spread to other sub-sectors for compensation.

This comes as the CSLR has increased the estimated levy for the current financial year to be paid by the financial services sector to $198.1 million, some $60.7 million increase form its initial estimate in November 2025.

ASFA chief executive Mary Delahunty said the dynamic playing out in Australia is very different to other jurisdictions.

"Every other country we looked at asks simple questions: has the firm failed, is the client's money missing, and how much have they lost?" Delahunty said.

"In Australia, we ask how much an investor would have if they had never received bad financial advice and had hypothetically been put into a better investment option.

"That pushes the CSLR's compensation bill higher. The more than 16 million Australians who are members of traditional super funds are now having to help pay that bill even though they can't claim from the CSLR themselves."

In FY26, $6.1 million of a $47.3 million special levy was charged to the savings of members of traditional, institutional super funds. However, the overwhelming majority of CSLR claims came from people who were advised out of institutional super and into self-managed funds, she added.

"It is like being forced to insure not just your own house, but someone else's house in another town, and then being told the premium will rise every year because the other town keeps burning down," Delahunty said.

"Institutional super is a low-risk sector, where the likelihood of losing your investment is extremely low. Even on the chance that losses do occur, super fund trustees are legally obliged to pay compensation, so we wouldn't see the uncompensated losses that lead to CSLR claims happening in institutional super.

"Members of super funds already pay for institutional super's own compensation arrangements. Those same members are now being asked to fund a second compensation scheme they cannot use."

She said the principle of the scheme "conflicts" with the legislated purpose of super, which is to secure Australians' retirements, "not to fund unrelated schemes that don't add up financially."

Additionally, the paper described the CSLR as a "self-reinforcing cycle", meaning if action is not taken to improve the sustainability of the scheme, the result can rapidly compound growth in levies unless it is reformed.

In response, Delahunty said there are several design issues with the CSLR to make the scheme "fundamentally unsustainable", reiterating the scheme should only pay compensation where a consumer's money is "genuinely gone".

She also called for the sectors generating the losses to fund the compensation, instead of spreading the cost, and focusing on stopping losses happening in the first place.

"Because prevention is better than compensation. Stopping unregulated lead generators, aggressive sales tactics and conflicted advice from causing these losses in the first place is the most effective way to bring the CSLR's costs under control," she added.

Multiple peak bodies, including the likes of the SMSF Association, the Council of Australian Life Insurers and the Financial Advice Association Australia, have, however, advocated for the cost to be spread across all sub-sectors and the government.