Australia’s Compensation Scheme of Last Resort is the only scheme of its kind worldwide that is funded from the retirement savings of people who cannot claim from it, and the only one that compensates investors for hypothetical losses rather than actual losses.
That is the finding of independent benchmarking by Marsh Risk Consulting, commissioned by ASFA and released today alongside ASFA‘s policy white paper, Building a Sustainable Compensation Scheme of Last Resort. The research compares the CSLR against six mature international schemes across the United Kingdom, the United States and Europe.
“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?” said ASFA CEO Mary Delahunty.
“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,” ASFA CEO Mary Delahunty said.
Who is paying
In the schemes Marsh examined, the sectors that generate investor losses are the sectors that fund the compensation. That is not the case in Australia. Personal financial advice has accounted for 96 per cent of all compensation the CSLR has paid but has contributed only 84 per cent of its funding. It would be impossible for financial advisers to fund 100 per cent of compensation claims arising in the personal advice sector, as it would put small advice firms out of business.
The funding shortfall is made up by levying other sectors including superannuation. 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.
“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,” Ms 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.
“This conflicts with the legislated purpose of superannuation. Super exists to secure Australians’ retirements, not to fund unrelated schemes that don’t add up financially,” she said.
A way forward
There are several design issues with the CSLR, which Ms Delahunty said make the scheme “fundamentally unsustainable”.
“The super sector has asked the government to make some structural fixes to the CSLR. First, the scheme should only pay compensation where a firm has failed and a consumer’s money is genuinely gone, rather than offering compensation for hypothetical lost investment returns.
“Second, we want to see the sectors that generate the losses funding the compensation, instead of spreading the cost to sectors that had nothing to do with the loss-causing behaviour, and whose members can’t claim from the CSLR.
“Third, stop the 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,” Ms Delahunty said.
The whitepaper and global comparison research are available here.
Members of the media may contact:
Scott Roberts
Media and Content Lead
sroberts@superannuation.asn.au
0451 949 300
About ASFA
ASFA is the peak policy, research and advocacy body for Australia’s superannuation industry, and the only industry body that represents all parts of the APRA-regulated system.
Our more than 100 members include retail, industry, corporate and public sector funds and their service providers. For over sixty years, ASFA has been the voice of super, advocating for a dignified retirement for all Australians. Through research, advocacy and collaboration, ASFA promotes efficiency, sustainability and trust in Australia’s world-class retirement income system.