In January this year I wrote an editorial alerting readers to the fact Minister for Financial Services Daniel Mulino was considering the idea of having SMSFs help fund the Compensation Scheme of Last Resort (CSLR).
At the time, I labelled it as a terrible suggestion and have not changed my mind about the issue. But unfortunately I have tell you the potential move has taken a step closer to becoming reality.
Just to recap, the CSLR is the government’s safety net to ensure investors who have lost money from financial product failures receive some money to cover any losses they may have incurred.
Now onto the latest development. Mulino has now actually released a discussion paper specifically proposing how SMSFs could play a role in funding the CSLR or not.
The paper lays out two options. The first is to have stakeholders contemplate whether SMSFs should opt to pay for the privilege, and I use that term loosely, or opt not to pay for it and, as a result, have no access to the CSLR as an avenue for financial compensation in the event of financial loss brought about by the collapse of a product like the Shield or First Guardian master funds. So basically an arrangement similar to that of an insurance premium.
Option two suggests eliminating SMSFs from the scheme altogether – not having the sector pay a levy, but also not allowing those funds to participate in the initiative.
The government, however, did afford the concession that even if SMSFs were to be considered ineligible for CSLR compensation, they would still be able to take situations where members had suffered financial loss as a result of egregious behaviour to the Australian Financial Complaints Authority. How generous, but I suppose we have to be thankful for some small mercies.
Still, from my perspective any proposals to prevent SMSFs from accessing the CSLR are completely unacceptable and display how disturbing and hypocritical superannuation policy from Canberra is now.
It is disturbing a government can even contemplate it is okay to exclude a sector that makes up at least a quarter of the superannuation industry from the ability to take part in a compensation scheme designed for all consumers.
It’s not the fault of SMSF members that in recent times we have witnessed the collapse of Dixon Advisory, United Capital Group, Shield and First Guardian. All of these have been labelled black swan events, but I have asked recently whether they can be considered white swan events seeing four of them have occurred in such a short space of time.
Further, I don’t understand how it is determined SMSFs are making a large number of claims as a justification for proposals like this. Often the problem stems from unscrupulous advice individuals receive to roll their super benefits over to an SMSF and then invest in these now failed investment vehicles. Is that scenario one for which the sector deserves to be punished? Or is that a regulation issue for other government agencies?
The ideas put forward in this paper are dangerous as they could create an unjust multi-tiered superannuation system where the rights of some individuals are treated differently to those of others.