A plan to tap the $4.3 trillion superannuation sector to help bail out victims of failed investment schemes has made strange bedfellows of union-backed funds and the federal opposition.
Industry and retail funds are being dragged in to help pay a special levy to fund a $47.3 million shortfall in the Compensation Scheme of Last Resort, under federal government reforms driven by the collapse of Shield Master Fund and First Guardian.
The levy highlights the Albanese Labor government’s failure to fix problems within the corporate watchdog, which was criticised for the time it took to act, coalition financial services spokesman Pat Conaghan said on Wednesday.
“Even the ACTU has publicly criticised Treasurer Jim Chalmers – declaring that working people should not have to pay for (the Australian Investments and Securities Commission’s) failures,” Mr Conaghan said.
“They’re right on this.”
The compensation estimate for the following 2027 financial year has already blown out to $137 million, and that amount could double once relief for the victims of the First Guardian and Shield collapse is included.
“It is now so large that every Australian will be forced to foot the bill for the government’s inaction,” Mr Conaghan said.
About 12,000 Australians lost up to $1.2 billion in retirement savings after being lured to the funds, often by third parties with promises of higher returns.
The case shows an urgent need to tighten protections across the super and investment landscape, said advocacy group Super Consumers Australia.
“Consumers should be able to trust that switching funds, especially when encouraged to do so, won’t land them in higher risk, low-value products,” CEO Xavier O’Halloran said.
“Today’s steps are a clear recognition of that risk, and a clear shift toward better protections.”
The federal government is also considering other reforms, including stopping high-pressure tactics to push people to switch their retirement savings into high-risk products, Financial Services Minister Daniel Mulino said.
Dr Mulino will issue a discussion paper in February looking at reforms to the compensation scheme to ensure its ongoing sustainability.
“It’s a really important consumer protection backstop, but potentially even more important is ensuring that mum and dad investors can invest in confidence, that we have the right protections and that we stop these collapses happening,” he told reporters in Sydney.
Financial advisers, fund managers and credit providers such as banks also contribute to the Compensation Scheme of Last Resort.
The government will also consider reforming professional indemnity insurance and targeting the misuse of insolvency practices to dodge Australian Financial Complaints Authority rulings.
“Defective schemes attract funds that should otherwise support innovation and economic growth,” Dr Mulino said.
The levy is going ahead in defiance of unions and the retail superannuation funds sector, which believe it effectively hands the bill for financial failures to ordinary Australians who could end up with higher fees and charges.
“Forcing 18 million Aussies who are super fund members to fund the (compensation scheme) will set a dangerous precedent,” Association of Superannuation Funds of Australia CEO Mary Delahunty said.
“It is like being forced to pay for home insurance not only for your own house, but also for someone else’s house in another town.”
The Super Members Council noted that while ordinary people would ultimately foot the levy bill, wealthy Australians with self-managed super funds would be exempt.
About 80 per cent of compensation claims come from that sector.
“It’s crucial to slam the door shut to stop consumers being harmed in the first place,” council CEO Misha Schubert said.
“Prevention is always better than clean up.”
Australian Associated Press is the beating heart of Australian news. AAP is Australia’s only independent national newswire and has been delivering accurate, reliable and fast news content to the media industry, government and corporate sector for 85 years. We keep Australia informed.
