Super shake-up: Full-loss payouts and easier advice planned for millions of members

Superannuation funds face tougher penalties when investments go bad but will get more freedom to nudge members away from trouble under a sweeping overhaul of the $4 trillion retirement system sparked by the Shield and First Guardian collapses.

Almost 12,000 Australians put more than $1 billion of retirement savings into Shield and First Guardian, exposing gaps across lead generation, financial advice, managed investments and super platforms.

For some, the path started with a social media ad or cold call warning their super was underperforming.

“The perpetrators are sophisticated and effective,” Assistant Treasurer Daniel Mulino told the National Press Club in Canberra on Wednesday. “They are then referred to a financial adviser. Recommendations are made, and all too often savings are moved.”

Mr Mulino said large portions, sometimes all, of a person’s retirement savings could then be concentrated in products that were “highly risky, not transparent and not diversified”.

The Government will try to choke off that funnel by banning unlicensed real-time pitches about super, restricting an exemption from anti-hawking laws to existing advice clients and increasing penalties for unlawful hawking.

It will also target data brokers that feed consumers into the sales funnel.

But the reforms will simultaneously make it easier for millions of super members to receive legitimate advice from their fund.

The Government will press ahead with targeted prompts allowing funds to approach members while expanding intra-fund charging for advice and streamlining statements of advice.

It will also create a new class of adviser initially available through Australian Prudential Regulation Authority-regulated super funds and life insurers, with commissions, bonuses and volume-based payments banned. The regime will be reviewed after three years.

“These reforms will allow superannuation funds to engage with members when they need support most, helping Australians receive guidance at important moments in their financial lives rather than after opportunities have already been missed,” Mr Mulino said.

New regulator powers to stop CSLR pile up

But if money still reaches a super platform and the investment fails, trustees could shoulder more of the loss.

The Australian Securities and Investments Commission will be able to order a trustee to begin remediation when an investment option fails and there is reasonable suspicion it breached its obligations. If a breach is established, the trustee would have to repay members’ full capital losses.

APRA could also require funds offering higher-risk options to hold enough capital to meet potential claims.

“Consumers should not be left facing years of uncertainty while they pursue redress through multiple avenues,” Mr Mulino said.

“They should have a clear and practical pathway to meaningful compensation.”

The aim is to make firms closer to a failure pay earlier rather than leaving consumers to chase several parties before falling back on the industry-funded backstop, the Compensation Scheme of Last Resort.

More than $100 million was invested in Shield and First Guardian through self-managed super funds, with SMSF losses accounting for more than 90 per cent of CSLR costs to date.

Mr Mulino said thousands of complex claims were delaying compensation while increasingly large special levies pushed the cost onto parts of the financial services industry.

He said the CSLR was never designed to absorb investment failures on this scale.

“The quantum of those losses is simply too large,” he said.

The result is a $170.3m special levy attributed to the financial advice sector for 2026/27, although the Government is still deciding how much advisers will ultimately pay.

Financial Advice Association Australia chief executive Sarah Abood warned the levy would make advice more expensive for consumers.

“Innocent financial advisers are currently paying these bills, and in many cases are forced to pass the costs on through higher advice fees,” Ms Abood said.

She said consumers should not have to pay more for advice because of failures by unrelated firms elsewhere in the financial system.

The FAAA says the median price of financial advice has jumped 65 per cent in five years to about $4700, while nine in 10 advisers expect the CSLR levy to push costs higher again.

Mr Mulino announced the Government will apply its proposed “waterfall” model to the $170.3m bill, meaning advisers will not necessarily have to absorb the entire shortfall.

“But applying the waterfall model doesn’t mean that sub-sectors are automatically going to pay their maximum cap,” Mr Mulino said.

He said the ability of affected sectors to absorb the cost and the broader interests of the financial system would be considered before the final split was decided. Treasury is still working through the bill.

SMSFs will also contribute to future special levies, with the Government estimating individual funds would pay no more than $20 in a leviable period.

Mulino: Future losses don’t count

The Government is also narrowing what the CSLR will compensate, with AFCA applications made from July next year limited to actual investment losses rather than hypothetical losses.

Mr Mulino called it “a necessary decision to safeguard the sustainability of the scheme”.

But Super Consumers Australia warned the change could cost Shield and First Guardian victims another $26,500 on average in foregone investment earnings.

“There is a lot to welcome in this package, but the Government’s decision to reduce compensation for people who have already been harmed is a step in the wrong direction,” chief executive Xavier O’Halloran said.

The group says victims of the two collapses lost about $100,000 on average.

CHOICE also opposed the change, arguing it watered down a longstanding approach to calculating compensation barely two years after the CSLR began operating.