Australia’s biggest super funds have passed APRA’s first cross-sector stress test, but the regulator has warned their decisions could still add pressure to banks and markets in a crisis.

The Australian Prudential Regulation Authority’s inaugural System Risk Stress Test found the big four banks and six large super funds could survive a severe hypothetical shock, including liquidity pressure worse than anything large Australian banks have faced in 50 years.

The prudential regulator’s verdict was super funds could help stabilise banks by providing money in a downturn, but if one bank came under liquidity pressure, funds pulling capital away could make the squeeze worse.

The test also showed how trouble could move between banks, super funds, markets and major service providers, with APRA warning that decisions by a handful of large funds will matter more as the sector grows.

APRA chair John Lonsdale said: “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 warning lands alongside a separate Deloitte forecast that Australia’s superannuation system will grow from about $4 trillion in 2025 to $12.4 trillion by 2045, or about $7.5 trillion in today’s dollars.

Deloitte says super has entered a “mega-fund era”, with the number of funds managing more than $100 billion expected to rise from 10 to 12 within a few years.

Separate Morningstar data shows the number of super funds in Australia has fallen 85 per cent over 20 years to below 90.

Deloitte principal Diane Somerville said the top 25 superannuation entities now held 97 per cent of APRA-regulated assets, while the top 10 controlled 73 per cent.

“We expect that there will be further rationalisation, with the few remaining corporate funds eventually moving into aligned public offer industry funds or retail master trusts,” Ms Somerville said.

“While some smaller funds will remain, we anticipate they will offer specialist investments or a targeted or niche member proposition to differentiate themselves.”

Ms Somerville said that concentration of Australian assets within the dwindling number of funds could create problems for markets and portfolios.

Deloitte’s report says super funds’ Australian shareholdings already represent just over 36 per cent of total ASX market capitalisation.

If current allocation settings hold, Deloitte says that share could approach 50 per cent by 2045.

“The ASX is relatively small and heavily weighted towards financials and resources, meaning increasing super fund ownership could heighten exposure to sector concentration and macroeconomic risk,” she said.

Australia’s domestic investment problem goes beyond the size of the ASX. Harvard Growth Lab data ranks Australia about 74th out of 145 countries on the Economic Complexity Index, the second-lowest result in the OECD ahead of Chile.

The index measures the diversity and sophistication of what a country produces and exports. Harvard assesses Australia as “less complex than expected for its income level”.

Ms Somerville said Australia’s relatively concentrated listed market would “probably push super funds to look harder at offshore assets and alternative investments”.

These risks were among the conditions APRA stress tested. For super funds, the scenario assumed member withdrawals and investment switching well above the levels seen during COVID-19 or earlier bouts of market stress.

Mr Lonsdale said the regulator would use the findings to guide proposed changes to bank liquidity rules over the next 12 months, as well as its supervision of banks and super funds.

But beyond the plumbing of the financial system sits the member, and Deloitte’s report points to a growing retirement challenge for super funds as balances rise and more Australians leave the workforce.

More than three million Australians aged 55 to 64 are approaching retirement. By 2045, Deloitte expects about 70 per cent of retirees to have more than $500,000 in super in today’s dollars.

Deloitte actuarial consulting partner Andrew Boal said: “The question is no longer whether the system can build balances, but whether it can convert those balances into simple, effective and reliable retirement income.”