The $4.8 trillion super warning – and what the worst-case scenario would be
A potent mix of AI investment hype, cyberattacks and a retirement wave could test the nation’s super system.
That’s what is keeping some people at the RBA up at nights – as well as millions of Australians banking on their nest eggs for retirement.
A potent mix of AI investment hype, cyberattacks and a retirement wave could test the nation’s super system. Glenn Hunt/Fairfax Media
With Australians holding a combined $4.8 trillion in super, RBA assistant governor Brad Jones has laid bare five major threats keeping regulators on alert, as reported by the Australian Financial Review.
While the threats are obvious, and have the potential to impact the whole of the financial sector, not just super, it was enough to prompt a warning.
Global conflict and geopolitical tension are high on the list, with Jones likening the current climate to the Cold War.
AI is another concern, with huge amounts of money now invested in companies linked to the technology.
Until recently, investors were betting earnings across the US technology sector would rise by about 45 per cent every year indefinitely.
“Far be it for me to opine on whether that’s irrational or not,” Jones said at The Australian Financial Review Super & Wealth Summit.
With Australians holding a combined $4.8 trillion in super, RBA assistant governor Brad Jones has laid bare five major threats keeping regulators on alert. iStock
“But clearly there was a lot of good news in the price, and coupled with that, what we were starting to see, and are starting to see, is increasing use of debt, which is different from the late ‘90s tech boom.”
For Australians watching their super balances, the risk is a market fall if expectations around AI prove too optimistic.
Jones also warned a large share of the US market is now tied to a small number of companies.
“You’ve basically got to go back to the 19th century to find a similar period in history,” he said.
Closer to home, the sheer size of Australia’s super system brings another issue, Jones said.
Super funds are now so entwined in Australian investments that a rush by funds to sell during a crisis could make a market downturn worse.
There are also concerns about the companies behind the everyday running of super funds.
Much of the industry depends on a small number of providers to administer accounts and hold assets.
If one of those providers went down or suffered a serious disruption, problems could spread across multiple funds.
Cyberattacks are another threat, with Jones describing the contest between hackers and those trying to stop them as “almost like an arms race”.
Australia experienced that exact scenario in April last year, when cyberattacks hit super accounts in the middle of a tariff-driven market slump.
On top of that sits Australia’s ageing population, with record numbers of retirees now drawing down the nest eggs they spent decades building.
Super funds currently receive between $1 billion and $2 billion in net inflows each week, giving them a steady supply of cash.
The nest eggs of millions of Australians are in the crosshairs of a brewing storm, the RBA warns. Supplied
But as more Australians retire, funds will need to pay an increasing amount of money out instead.
If a market crash hits at the same time and large numbers of members want their money, funds still have to come up with the cash. That could mean selling investments when their value has fallen or when buyers are harder to find.
COVID showed how suddenly the amount of money leaving super can jump.
Some funds recorded unexpected net outflows worth about 5 or 6 per cent of their assets after Australians were allowed to access their super early, although most saw about 1 to 2 per cent.
Despite the risks, Jones said the system was currently in a “pretty reasonable position” to withstand significant financial stress following testing by the RBA and APRA.
The worst-case scenario is multiple shocks hitting at once – a market crash landing at the same time as a cyberattack, a system outage, or a sudden stampede for cash.
The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without considering your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.
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