Super giants tapped to compensate for self-managed duds
A plan to tap the $4.3 trillion retirement industry to bail out victims of failed investment schemes has created strange bedfellows between union-backed funds and federal opposition.
Industry and retail funds are being put in place to help pay for a special levy to finance a $47.3 million shortfall in the industry. Last Resort Compensation PlanAs part of the federal government reforms sparked by the collapse of the Shield Master Fund and the First Guardian.
Coalition financial services spokesman Pat Conaghan said on Wednesday the tax underlined the Albanian Labor Party government’s failure to resolve problems within the corporate watchdog, which has been criticized for the time it has taken to take action.
“Even the ACTU has openly criticized Finance Minister Jim Chalmers, declaring that working people should not have to pay for the failures of the Australian Investment and Securities Commission,” Mr Conaghan said.
“They’re right about that.”
The compensation estimate for the next fiscal year 2027 has already risen to $137 million, and that amount could double if benefits for victims of the collapse of the First Guard and Shield are included.
“It’s now so big that every Australian will have to pay the price for the government’s inaction,” Mr Conaghan said.
Nearly 12,000 Australians have lost up to $1.2 billion from their retirement savings after being diverted into funds by third parties, often with the promise of higher returns.
Advocacy group Super Consumers Australia said this showed an urgent need to tighten protections in the super and investment space.
“Consumers should be able to trust that switching funds, especially when incentivized, will not steer them into higher-risk, lower-value products,” said CEO Xavier O’Halloran.
“The steps taken today are a clear recognition of this risk and a clear move towards better protection.”
Financial Services Minister Daniel Mulino said the federal government is also considering other reforms, including stopping high-pressure tactics that force people to dump their retirement savings into high-risk products.
Dr Mulino will publish a discussion paper in February examining reforms to ensure the ongoing sustainability of the compensation scheme.
“This is really important consumer protection support, but potentially more important is ensuring that mom and pop investors can invest with confidence, that we have the right protections in place and that we stop these crashes from happening,” he told reporters in Sydney.
Credit providers such as financial advisors, fund managers and banks also contribute to the Last Resort Compensation Scheme.
The government will also consider reforming professional indemnity insurance and targeting abuse of insolvency practices to avoid Australian Financial Complaints Authority decisions.
“Flawed plans attract funds that should otherwise support innovation and economic growth,” Dr Mulino said.
The tax continues to challenge unions and the retail superannuation fund industry, which believe it puts the blame for financial failures on ordinary Australians who could face higher fees and costs.
“Forcing the 18 million Australians who are super fund members to fund the compensation scheme would set a dangerous precedent,” said Association of Australian Superannuation Funds chief executive Mary Delahunty.
“It’s like having to pay home insurance not only for your own home, but also for someone else’s home in another city.”
The Super Members Council has stated that ordinary people will ultimately foot the tax bill, but wealthy Australians with self-managed super funds will be exempt.
Approximately 80 percent of compensation claims come from this sector.
“It is very important to slam the door first to prevent harm to consumers,” said council CEO Misha Schubert.
“Prevention is always better than cleanup.”
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