APRA stress test identifies super influence

Mike Taylor

Managing Editor and Publisher

1 July 2026

The Australian Prudential Regulation Authority (APRA) has identified common dependencies on major service provides and the influence of a few major funds as  key concerns identified in its inaugural System Risk Stress Test focus on links between banking and superannuation.

The stress test exercise, conducted in 2025, covered the four major banks and six large superannuation funds and examined how a hypothetical “severe but plausible” shock might impact the financial system and, amongst other things, cited the “outsized influence” of a small number of large funds.

APRA’s comments on large funds prompted the Australian Council of Trade Unions to ramp up its criticism of the regulator stating that APRA’s warning was galling because the regulator had helped create the concentration risk.

The ACTU said that, for years, the regulator pushed smaller funds to merge or exit and had once branded funds with less than $30 billion in assets “uncompetitive” and noted that now departed APRA deputy chair, Margaret Cole, had said the sector was “some considerable way off needing to worry that there will be too much concentration.”

ACTU assistant secretary, Joseph Mitchell said that, “once again, APRA looks everywhere but the mirror”.

“Its own stress test describes a risk of its own making, yet the only party asked to lift its game is the funds,” he said.

While generally finding the Australian financial system to be appropriately resilient, the APRA stress test found the following:

The test highlighted system vulnerabilities that could amplify stress events, such as concentration risks, mismatched behavioural assumptions and common dependencies on major service providers.

The response of superannuation funds to stress events can materially affect their members, banks and financial markets. For example, when an individual bank is under liquidity pressure, superannuation funds’ withdrawal of funding can amplify the liquidity stress. However, in a broader downturn and solvency stress, superannuation funds’ willingness to provide equity capital to banks illustrates their ability to dampen risk and support financial stability.

Some vulnerabilities in the system are likely to increase as the superannuation system grows and matures. Decisions by a small number of large funds could have outsized and more consequential effects across the system. As more members move into retirement, this will increase demands on liquidity and funds’ response capabilities to meet pension payments and member withdrawals.

Better entity preparedness for stress events across industries will make the financial system stronger. The test found superannuation funds need to uplift their capabilities to test severe stress commensurate with the sector’s greater systemic footprint. It also highlighted areas where banks – which have more experience with liquidity stress testing – can uplift their capabilities.

Commenting on the outcome, APRA chair, John Lonsdale acknowledged the more interconnected nature of the financial system meant decisions made in one part of the system not only impacted other financial institutions in the same sector, but those in different sectors as well as service providers.

“With superannuation expected to keep growing its share of the financial system in coming years, it’s essential we gain deeper insights into how super funds are likely to respond to a severe stress event – and how their decisions may impact other parts of the financial system.

“The findings of the stress test demonstrate the ability of our banks and superannuation funds to respond to financial stress and operational disruption. However, they also highlight areas where banks and super funds will need to invest more effort to further build up their resilience,” Lonsdale said.