The Association of Superannuation Funds of Australia (ASFA) released new research challenging the narrative that the influence of superannuation funds over the economy and capital markets poses a potential risk to the stability of the financial system.
Rather than destabilising markets, ASFA said that super funds strengthened Australia’s economy by boosting national savings, reducing reliance on foreign capital, and acting as a stabilising force during downturns.
In fact, the association said that during periods of heightened volatility, super funds tend to deploy new financial capital in a countercyclical manner.
“The steady stream of contributions – particularly into the compulsory super system – provides a fairly predictable source of new demand for domestic securities. Net of stable outflows for the payment of retirement incomes, these annual flows amount to around $50 billion,” ASFA said.
“In addition, super funds – as investors with relatively long-time horizons – can afford to absorb short-term asset-price fluctuations and are reluctant to realise losses.”
The research also highlighted super funds’ role in past financial crises, including the Global Financial Crisis (GFC), when they provided critical liquidity as other capital sources dried up.
With corporate bond markets tightening, Australian firms turned to equity raisings, where super funds became a vital buyer.
“At a time when many companies sought to issue new shares, the super sector was a vital buyer – which drove a (then) record level of equity fundraising in 2008–09,” ASFA said.
Beyond its ability to provide capital in times of crisis, the super system has structural safeguards that limit systemic risks, ASFA said, underscoring that 94 per cent of super assets are held within defined contribution funds, meaning they do not carry guaranteed return liabilities that could amplify financial stress.
Additionally, super funds have limited capacity to borrow, a stark contrast to overseas pension systems where leverage has been a major source of market turmoil, the association said.
ASFA highlighted the UK pension crisis in September 2022, where leverage within defined benefit funds led to significant stress in the UK government bond market. In contrast, the Australian super system’s lack of leverage ensured it had a stabilising influence during past financial shocks, including the GFC, it said.
Also responding to criticism surrounding funds’ influence on the ASX, ASFA said that while the total value of superannuation investments has more than doubled over the past decade, its share of domestic financial assets has remained proportionate to the size of financial markets.
“For example, since 2013 (the start of APRA’s data set) the APRA regulated system’s share of holdings of ASX-listed equities has risen only slightly,” ASFA said.
In contrast, it said that self-managed super funds (SMSFs), which are not within the APRA-regulated system, have shown a steeper trajectory in domestic equity holdings.
“The likely continuation of this trend is suggested by the fact that, at present, 60 to 70 cents of every new dollar of superannuation capital is deployed offshore, as funds seek to counter concentration risk vis-à-vis the Australian economy: the system-wide allocation to domestic assets is around 50 per cent, while Australia accounts for just 2 per cent of global GDP and 3 per cent of advanced-economy GDP,” ASFA said.
Beyond capital markets, the report highlighted super’s pivotal role in funding infrastructure. APRA-regulated super funds had invested $118 billion in domestic infrastructure – $97 billion in unlisted assets and $21 billion in listed projects – helping to drive economic growth and productivity.
ASFA also underscored super’s role in Australia’s energy transition, positioning funds as a key source of capital for the sector. However, it said that “accommodative policy settings would be crucial” to unlocking further investment in energy infrastructure.
Ultimately, ASFA CEO Mary Delahunty said the association’s report reinforced super’s broader economic benefits.
“As we look to the upcoming election, this research confirms that our superannuation system is easing the strain on the federal budget and helping household budgets,” Delahunty said.
“The research showcases once again why Australia’s super system – built on the pillars of preservation, universality and compulsion – is the envy of the world.”
