Retirement
Financial victims shunned by changes to last resort compensation scheme
Retirement
Financial victims shunned by changes to last resort compensation scheme
Proposed changes to the federal government’s compensation scheme of last resort will leave “devastated victims out in the cold”, an industry expert has warned.
Financial victims shunned by changes to last resort compensation scheme
Proposed changes to the federal government’s compensation scheme of last resort will leave “devastated victims out in the cold”, an industry expert has warned.
Consumer group Choice has highlighted that the government’s watered down approach to the compensation of the last resort scheme fails to deliver on its public commitment to victims of financial scandals as outlined during the banking royal commission.
The financial services royal commission recommended the establishment of a compensation scheme of last resort to compensate consumers once all other avenues had been exhausted.
However, the changing government regulation has been heavily criticised by both businesses and consumer groups.
Eight of Australia’s largest financial advice industry associations have now united to oppose the reforms, expressing concerns the compensation scheme will become a go-to option rather than last resort.
Chartered Accountants Australia and New Zealand (Chartered Accountants ANZ), CPA Australia, Financial Planning Association of Australia (FPAA), Institute of Public Accountants (IPA), SMSF Association (SMSFA), Association of Financial Advisers (AFA), Stockbrokers and Financial Advisers Association (SAFAA) and the Boutique Financial Planning Principals Association Inc say the proposed scheme will make financial advice less affordable and accessible.
While the organisations are arguing the scheme would only increase the cost of doing business, consumer advocates Choice have said that victims, including those of the Sterling First scheme, are being barred from gaining adequate compensation.
“The government committed to a scheme that could pay over $540,000 in compensation, as recommended by the royal commission, covering a broad range of financial scandals,” said Choice CEO Alan Kirkland.
“The proposals now released by the government will disappoint victims by capping compensation at $150,000 and failing to cover compensation from financial scandals in areas like managed investment schemes and funeral insurance.
“This will see many people go uncompensated,” Mr Kirkland added.
Sterling First was the flagship product of a sprawling Western Australian group of property management and investment companies, Sterling First Group, which collapsed in late 2019.
The scheme involved investors handing over their life savings to secure a home on a lifetime lease of up to 40 years. Elderly customers across the country signed up in droves, paying in total more than $18.5 million.
But in June 2019, the Sterling First Group was put into liquidation, leaving more than 100 customers across the country facing possible eviction and heavy financial losses.
Barry Raynor, one of the victims of the Sterling First investment scheme’s collapse, said he was “gutted” when he first found out about the scheme.
“My mental health was put back a fair bit and I lost about $145,000. I wasn’t sure where to go next,” he told Choice.
Mr Raynor highlighted he has been living on $150 per week after bills while engaged in a four-year legal battle to recover the money owed to him.
“Without that money coming back, I don’t know what will come back,” he said.
A submission to Treasury co-signed by nine consumer groups also calls on the government to ensure the scheme can pay compensation to people who have been ripped off by debt management firms and providers of funeral expense policies – such as the Aboriginal Community Benefit Fund, now trading as Youpla, which was heavily criticised before the banking royal commission.
Mr Kirkland believes the Sterling First victims, along with many others of similar schemes, deserve better than their current treatment.
“To carve out people who have lost money in situations like Sterling First or the Aboriginal Community Benefit Fund will have impacts on entire communities who need their money back.”
Highlighting experiences that have proven economic crises to be a “fertile ground for scams and misconduct”, Mr Kirkland opined the need for stronger legislation.
“We need strong executive accountability and a compensation scheme for victims now, and we need both measures to be broad-based and effective.”
About the author
About the author
Retirement Planning
Australia ranks 7th on global retirement index
Australia occupies the seventh place on the Natixis Global Retirement Index, behind Switzerland, Norway, Ireland, the Netherlands and New Zealand. ...Read more
Retirement Planning
What is an annuity and how does it work?
Having enough income for retirement is important. If you’re looking for an alternative source of income when you’re retired, an annuity may be the answer. ...Read more
Retirement Planning
Are you retiring with more than you need?
A lack of knowledge about retirement options as well as outdated models mean many Australians are retiring with more than they need, an industry expert has revealed. ...Read more
Retirement Planning
Structural reforms required as women retire in poverty
Older women are continuing to suffer from financial hardship, as key structural issues continue to see women go backwards in terms of wealth compared with men, an industry expert has revealed. ...Read more
Retirement Planning
Why it will now cost more to retire
The cost of retiring just increased, with surging fuel costs and the rising price of food and healthcare negatively impacting a retiree’s bottom line. ...Read more
Retirement Planning
What is Financial Independence, Retire Early (FIRE) movement?
Do you want to achieve financial independence and retire early? The followers of FIRE movement say it’s achievable. ...Read more
Retirement Planning
Is the government misleading consumers when it comes to retirement?
Industry Super Australia has accused the Morrison government of misleading consumers when it comes to financial outcomes in retirement. ...Read more
Retirement Planning
Decade funding delay sees ‘dire’ warning for aged care sector
A failure to build on the ideas outlined in the aged care royal commission is set to push an already breaking system into a ‘dire situation’ in just 10 years’ time, new research has warned. ...Read more
How the post-lockdown period will influence property, what the soaring NFT market means, and defining financial wellness
Listen now
APRA’s mortgage crackdown, the power of DeFi and last-minute tax tips
Listen now
What to expect as the end of lockdown looms? Will the Stage 2 tax cuts boost your tax return? Where should investors be looking as the economy reopens?
Listen now
Could property prices inflate by another 20%? What’s happening in recent dividend announcements? Did your fund fail the YFYS test?
Listen now
RBA says BNPL 'no surcharge' rules distort competition
Read more
Australia’s banks may be more vulnerable to cyber attacks than you think
Read more
Investors are more open to net zero but less savvy on the risks
Read more
The more time I spend looking at my money, the further I feel from financial freedom
Read more
Retirement Planning
Australia ranks 7th on global retirement index
Australia occupies the seventh place on the Natixis Global Retirement Index, behind Switzerland, Norway, Ireland, the Netherlands and New Zealand. ...Read more
Retirement Planning
What is an annuity and how does it work?
Having enough income for retirement is important. If you’re looking for an alternative source of income when you’re retired, an annuity may be the answer. ...Read more
Retirement Planning
Are you retiring with more than you need?
A lack of knowledge about retirement options as well as outdated models mean many Australians are retiring with more than they need, an industry expert has revealed. ...Read more
Retirement Planning
Structural reforms required as women retire in poverty
Older women are continuing to suffer from financial hardship, as key structural issues continue to see women go backwards in terms of wealth compared with men, an industry expert has revealed. ...Read more
Retirement Planning
Why it will now cost more to retire
The cost of retiring just increased, with surging fuel costs and the rising price of food and healthcare negatively impacting a retiree’s bottom line. ...Read more
Retirement Planning
What is Financial Independence, Retire Early (FIRE) movement?
Do you want to achieve financial independence and retire early? The followers of FIRE movement say it’s achievable. ...Read more
Retirement Planning
Is the government misleading consumers when it comes to retirement?
Industry Super Australia has accused the Morrison government of misleading consumers when it comes to financial outcomes in retirement. ...Read more
Retirement Planning
Decade funding delay sees ‘dire’ warning for aged care sector
A failure to build on the ideas outlined in the aged care royal commission is set to push an already breaking system into a ‘dire situation’ in just 10 years’ time, new research has warned. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
