“Superannuation fraud affects ordinary Australians saving for their retirement. Any solution must address a problem that impacts the whole financial services industry, including superannuation.”

Mrs Slattery, who commended the release of the Parliamentary Joint Committee (PJC) report into the Trio Capital superannuation fraud, said:  “In the case of Trio it was the product providers who committed the fraud and the compensation was paid to the APRA regulated superannuation fund members. A last resort compensation scheme operating at the product provider level would go a long way to spread the cost of compensation across the whole industry.” 

The introduction of a compensation scheme was suggested, but not recommended, by Mr Richard St John in his report examining compensation arrangements for consumers of financial services. This same compensation scheme was encouraged by the PJC, which indicated that if such a scheme had been in place, all private investors, SMSF trustees and APRA-regulated fund members would have been able to be compensated.

Mrs Slattery said that some areas of the PJC report concentrated solely on this issue of the SMSF sector and the loss of members’ retirement savings. “This implied that SMSFs are prone to greater levels of theft and fraud. This is not the case as APRA regulated superannuation funds continue to have issues relating to identity fraud and activities that allow criminal elements illegal access to members’ benefits.”

In the Trio case, 5000 APRA regulated fund members had their entire retirement savings stolen through fraud. Each year many claims for fraud and theft are lodged under the SIS legislation.  However, compensation has been paid in very few cases as it requires Ministerial intervention. The intervention is based on public interest criteria and only APRA regulated fund members can be fully or partially compensated for any loss.  In the Trio case, APRA fund members have been compensated for the whole amount.

She said: “The PJC recommended the ATO include consumer warnings on its website that SMSF trustees will not be compensated in the event of theft or fraud.  It called for a clear statement that SMSF investors have access to limited protections when compared with APRA regulated funds.

“SPAA is concerned that such warnings may give the impression that SMSF investors are not protected nor do they have alternative courses of actions if their benefits are the victim fraud or theft. While acknowledging this was sadly the case for ordinary Australians and SMSFs in the Trio case, it is not always the case for SMSF investors.”

An SMSF investor who suffers a loss as a result of the misconduct of another individual can, in many situations, seek compensation via the Corporations Law or the Superannuation Legislation. 

“We acknowledge there are shortcomings with these options and some actions may take some time to resolve.  This is why SPAA is advocating the introduction of a last resort compensation scheme.

“SPAA believes that if a compensation scheme was in existence before the Trio collapse, adequate but limited financial compensation could have been available to the SMSFs and the thousands of other independent mums and dads who lost their hard earned savings.”

Mrs Slattery also pointed out that the benefits of members in APRA funds could also be caught out by theft or fraud. There had been situations involving APRA funds, she said, where no compensation was awarded by the courts.

“Indeed, by APRA’s own admission in the report, their supervisory activities are not designed to seek out fraud and in any case their power to set prudential standards is not a protection against all fraud. Therefore, any such consumer warning should be directed at all investors and superannuation fund members, not just SMSF investors.

“The committee findings clearly demonstrate the importance of competent advice and the need for investors to seek advice from competent advisors for more informed decision making,” she said.

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