Australian Superannuation Funds Demonstrate Resilience Amid Financial Stress
In a recent examination by the Australian Prudential Regulation Authority (APRA), superannuation funds demonstrated remarkable resilience by continuing to provide necessary capital to support banks’ solvency, despite having financial pressures of their own.
APRA’s System Risk Outlook: A Commitment to Transparency
In an effort to enhance transparency concerning the risk environment, APRA unveiled its first-ever System Risk Outlook. This initiative serves as a platform for APRA to share insights on its perception of potential risks within the financial system.
The First Exploratory System Risk Stress Test
2025 marked a significant milestone for APRA as it conducted its inaugural exploratory system risk stress test. Traditionally, APRA has conducted stress tests for individual industries. However, this new approach aims to assess how key financial system risks could transmit across industries, with a particular focus on the banking and superannuation sectors.
This ground-breaking exercise comprised four large banks and six sizeable super funds. These participants represent approximately 70% of the banking industry and 45% of APRA-regulated super funds. The stress test is being carried out in two phases.
Key Findings from the Initial Phase of Stress Test
APRA has analysed the responses from the first phase of the stress test, resulting in five key findings:
1. Superannuation Industry’s Liquidity
The superannuation industry maintained sufficient cash and liquid assets to meet members’ requests and other obligations during the stressful period. However, significant changes to their asset portfolios were necessary, resulting in a disproportionate impact on some members.
2. Banks’ Liquidity Stress
Banks faced considerable liquidity stress due to a sudden and large withdrawal of deposits and other forms of funding, including withdrawals by super funds. Nevertheless, banks demonstrated adequate measures to restore liquidity levels and continue to meet their financial obligations when due.
3. Impact on Markets
Efforts to restore liquidity levels had a minor impact on markets. For super funds, this included sizeable transactions in domestic and international listed assets with limited transactions in unlisted assets. The scenario also had a moderate impact on foreign exchange margins and settlement.
4. Super Funds’ Support for Bank Solvency
Despite facing their own financial pressures, super funds managed to continue providing the capital needed to support the solvency of banks in the scenario. The methods and strategies used varied across super funds, depending on their business models and internal structures.
5. Operational Shock Exacerbated Stress Impact
The stress scenario was further exacerbated by an operational shock that temporarily halted the trading of securities. APRA clarified that this suspension was modelled at 5 days, which had a greater impact on banks due to the coinciding liquidity stress. Super funds were relatively less impacted, but the exercise highlighted areas where their operational responses could be improved.
This stress test exercise by APRA provides a valuable insight into the resilience of the Australian financial system, particularly the ability of superannuation funds to support banks during periods of severe stress. It also underscores the need for continual monitoring and risk management to ensure the stability of the financial sector.
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