Compensation scheme cost blowout reinforces urgent need for comprehensive uplift in consumer protections

Misha Schubert

Yesterday’s revised estimate of this year’s skyrocketing bill for the Compensation Scheme of Last Resort (CSLR) confirms the scheme is now being flooded by a surge in unpaid compensation orders from a string of recent financial advice and managed investment scheme failures.

The updated estimate for this year has risen from $137.5 million to $198.1 million, driven largely by continuing fallout from Dixon Advisory and the first tranche of claims linked to the Shield and First Guardian collapses. The scale of the new forecast once again highlights the utmost urgency for the Government to legislate its interlocking consumer safety reforms to stop devastating losses like these in the first place.

“A tsunami of unpaid compensation orders is now flooding the scheme,” said Super Members Council CEO Misha Schubert. “This highlights the absolute urgency of the need for stronger laws to protect consumers from these types of devastating harms in the first place, and an equally urgent need to enable super funds to deliver more safe, trusted financial advice to their own members.”

There is an urgent need to push forward with long promised Delivering Better Financial Outcomes (DBFO) reforms to expand access to affordable financial advice. Each day of delay is a day that leaves Australians exposed to safety risks, with the affordable advice gap making consumers more vulnerable to lead generation and high‑pressure sales to switch into riskier schemes.

“Prevention is always better than clean-up. Nothing short of large-scale consumer safety reforms that comprehensively lift the bar on consumer safety will stop continuous flooding of the scheme.”

Bold reform is crucial to protect millions of Australian consumers from catastrophic harms like these – and to ensure the survival of a true ‘last resort’ compensation scheme for those who will continue to need it in future.

The Council has consistently supported the principle of a compensation scheme for victims of financial misconduct while pushing hard for those responsible for misconduct to pay those costs, instead of the bill being sent to millions of low-paid Australians.

Large-scale failures such as Shield and First Guardian are already generating vast compensation costs far beyond what was originally anticipated when the scheme was established. If safe, highly regulated parts of the system foot the bill for unrelated misconduct elsewhere, it can only further incentivise misconduct.

The compensation system is now under severe strain, with major financial collapses exposing structural weaknesses in how losses are attributed and funded. Many of the recent unpaid compensation orders for losses involved victims investing via SMSFs and super platforms.

The Council is calling on the Government to urgently:

• Scrap the proposed levy waterfall model in its CSLR consultation paper, which risks embedding cost‑shifting rather than fixing the underlying problems.
• Instead align the scheme’s funding levies more closely with the sources of consumer harm, in a model that ensures that higher-risk sectors from which misconduct has arisen bear the costs.
• Rule out an expansion of CSLR levies to safe, well-regulated APRA‑regulated super funds whose members already fund their own operational risk reserves.
• Include Managed Investment Schemes (MIS) in the scheme’s funding base.
• Adopt clear, consistent treatment of SMSFs, including:
  • excluding SMSFs from both the levy and compensation scheme, or
  • if included, requiring mandatory and universal participation in funding (no opt‑in or opt‑out)
• Limit CSLR compensation to actual losses only, removing payments for hypothetical or “but‑for” investment returns.