The Reserve Bank of Australia governor Philip Lowe has warned that some superannuation funds could see their assets shrink by as much as 25 per cent from the government’s early-withdrawal provision that could see people tap up to $20,000 of their retirement savings early.

While Lowe conceded that redemptions would be “quite large” for some funds from the government scheme, he all but ruled out the central bank providing a liquidity support facility, at least for now, saying that the industry had had enough time to bolster its liquidity buffers and it would also need to pass a “public interest test”.

“The liquidity withdrawal from the super fund industry as a whole is perfectly manageable,” Lowe said on a conference call Tuesday, before adding that “some of the scenarios suggest that up to 20 or 25 per cent on the funds under management could be withdrawn for some particular funds.”

The government failed to consult the superannuation industry when it announced its new policy last month to help manage the economic fallout from the outbreak of the coronavirus. The policy has added further liquidity pressure on funds that were already reeling from a slump in equity markets and a spike in members switching their savings into cash. The concerns were said to have prompted some industry funds to ask the government for a backstop amid fears of excessive withdrawals.

The Australian Taxation Office sent its first batch of approved claims out to the super industry this week who now have five working days to transfer the money directly into their member’s bank account. More than 975,000 people registered their interest to withdraw their super early, though not everyone is expected to be approved. While the Treasury forecast that around 1.6 million people will likely make a claim totalling $27 billion, estimates among industry funds have forecast that figure to be closer to $65 billion.

“Funds have now had a month to get ready and they have further time before those withdrawals will take place,” the governor said on the call.  “So I am confident that they will be able to meet the liquidity demands from their members. ”

Lowe added that if the RBA were to provide a liquidity backstop for those funds struggling to meet redemptions, the central bank would need to determine that it was required to support the stability of Australia’s financial system. “At the moment, we’re not in a position to conclude that,” he said.

Sarah Jones is the deputy editor of Investment Magazine. She previously worked for Bloomberg News in London for more than 12 years covering equity markets and global asset management. Prior to moving to the UK, she worked for Australian Associated Press in Sydney covering economics and monetary policy.
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