Big super funds urge comprehensive CSLR redesign

Mike Taylor

Managing Editor and Publisher

26 May 2026

The major superannuation funds want the Compensation Scheme of Last Resort (CSLR) subjected to a thorough redesign to ensure its economic sustainability and to  reduce their exposure to further and ongoing special levies resulting from sub-sector cost over-runs.

At the same time, the APRA-regulated funds want self-managed superannuation funds (SMSFs) excluded from accessing the CSLR unless, like APRA funds, they are compelled to contribute to a special levy.

The APRA-regulated funds have also strongly backed dumping the Australian Financial Complaints Authority (AFCA) ‘but for’ approach and the adoption of an approach based on capital loss.

The Association of Superannuation Funds of Australia (ASFA) has strongly questioned whether Government consumer protection initiatives will be sufficient to make the CSLR more affordable and says, on that basis, a thorough redesign is needed.

“ASFA does not support a CSLR model where sub-sectors unconnected with the compensation liability are routinely called upon to fund it. In particular, ASFA strongly opposes entrenching a CSLR funding model that requires ongoing contribution from APRA-regulated superannuation funds, that will be funded from Australians’ retirement savings, when the members of those funds effectively receive no benefit from the Scheme,” it said in response to Treasury’s consultation.

“We anticipate that the implementation of broader consumer protection reforms proposed by the Government should – in time – reduce the flow of claims through to the CSLR and therefore its funding needs. Some of the specific proposals in this consultation paper, if adopted, will also serve to reduce compensation outlays and therefore contribute toward improving the Scheme’s sustainability.

“However, notwithstanding these improvements, it is likely that the total compensation liabilities under the CSLR will still too regularly exceed the levy caps applicable to the sub-sector(s) in which those liabilities arose – those described in the consultation paper as the ‘primary sub-sector(s)’.

“As a result, we consider there is a need to consider a more substantial re-design of the CSLR, with a specific focus on delivering a Scheme that can operate sustainably with its funding needs consistently met via contribution from those primary sub-sectors, without reliance on other sub-sectors unconnected to the liability,” the submission said.

The ASFA submission makes the point that it is highly unlikely that an APRA-regulated fund would leave a member uncompensated before stating: “Notwithstanding this, APRA-regulated superannuation funds have already been called upon to contribute some $6.1 million of the CSLR’s funding shortfall for 2025-26.

“Applying the current special levy methodology to the 2026-27 period would see a special levy in the order of $13.8 million3 imposed on the APRA-regulated superannuation sub-sector – with the prospect of further special levies in coming years, under both the existing funding model and the ‘waterfall framework’ proposed in the consultation paper,” it said.

The submission also made clear that the Treasury had been warned about the likelihood of the scheme being unsustainable in the fact of large scale financial provider failures.

“The ability to impose a special levy on unconnected subsectors, as included in the current legislation, was framed in terms of addressing “higher than expected costs for the levy period, such as where a large financial services provider becomes insolvent, or where a “black swan” event occurs in the financial services industry”4 . Effectively, the imposition of a special levy of unconnected sub-sectors was intended only as backstop funding, not to form part of the Scheme’s regular funding.

“However, only two years into the operation of the CSLR, several large scale financial provider insolvencies have already led to compensation liabilities far in excess of the sub-sector levy cap with that situation expected to deteriorate further as compensation claims relating to the collapse of Shield Master Fund and First Guardian Master Fund flow through to the Scheme. We have moved beyond discussion of “higher than expected costs” and “black swan events” – it is clear that without substantial reform there will continue to be a need for special levies and that the current model is unsustainable going forward.”