The government will make two key changes to the Compensation Scheme of Last Resort (CSLR) focused on reducing its costs and securing its future funding, including the application of an SMSF levy in some years.
The changes to the scheme were announced by Financial Services Minister Daniel Mulino at the National Press Club yesterday, where he stated payments made from the CSLR will be limited to actual investment losses rather than hypothetical losses for applications made to the Australian Financial Complaints Authority (AFCA) after 30 June 2027.
“This is a necessary decision to safeguard the sustainability of the scheme,” Mulino said, addressing a criticism of the operations of AFCA where it could make a compensation determination for the potential financial gains a complainant might have made if the event that led to their complaint had not occurred.
He also addressed the significant size of the current special levy of $170.3 million that will be charged to the financial advice sector in the 2027 financial year and confirmed the government will apply the waterfall model outlined in consultation and it includes SMSFs.
Under that methodology, where a special levy for a primary subsector covered by the CSLR, such as financial advice, has reached a cap of $20 million, it will flow to connected subsectors containing products and services connected to the losses, up to a cap of $40 million and then to retail-facing subsectors up to a cap of $30 million.
As part of this model, all SMSFs will considered as tier three levy payers in those years when a special levy is required, including the current financial year.
“SMSFs are a legitimate and important part of Australia’s retirement income system. They are also part of the financial services system that benefits from the existence of a compensation framework,” Mulino said.
“This is a balanced approach under which it is estimated that individual SMSFs are likely to contribute no more than $20 per leviable period, with an overall sector levy scaled according to the relative size of the SMSF population assets compared to Australian Prudential Regulation Authority-regulated sector assets.
“Alternative models, including excluding SMSFs from the scheme altogether, would have created significant gaps in consumer protection while adding complexity and administrative costs.”
The Minister pointed out the application of the waterfall model did not mean each subsector would automatically pay its maximum cap.
“The legislation requires me to consider the viability of affected sectors and the broader interests of the financial system,” he explained.
“In particular, I recognise that financial advice is a sector made up largely of small businesses.
“I have heard the concerns that they have raised throughout this process and I am committed to working with the sector to ensure that we arrive at an outcome that is sustainable, proportionate and fit for purpose.”
Jason Spits
SENIOR JOURNALIST
Jason is a senior journalist with Benchmark Media and writes for the selfmanagedsuper website and magazine and smstrusteenews website. He has covered financial services since 1999 and has written about life insurance, superannuation, investment management and financial advice, in both a freelance and in-house capacity, and also did a brief stint as a media manager for an industry association. He has been the editor of trade titles Money Management and Financial Standard, and was most recently senior journalist with life insurance title Riskinfo.
Articles by Jason