The Reserve Bank has been quietly working out ways it could establish a government-backed facility to help superannuation funds pay redemptions allowed under new rules to deal with the coronavirus crisis, even though the idea has so far been rejected by the treasurer, Josh Frydenberg.
Guardian Australia has learned that RBA staff have been working out how much could be drawn out of the super system under the new rules, which funds are likely to be hardest hit by withdrawal requests and what can be done about the problem.
The RBA’s backroom work has been going on amid a political debate about super’s ability to deal with the drawdowns, which some in the sector fear will force funds to sell assets during one of the worst market routs in a century.
On Monday assistant treasurer Jane Hume and Liberal backbench senator Andrew Bragg both attacked the super sector, saying it should have foreseen the crisis and the drawdowns.
Under new rules announced by Frydenberg last week, people who have lost income due to the pandemic can withdraw $10,000 before 30 June and an additional $10,000 after that.
The government predicts up to $27bn will be withdrawn, but some super funds say redemptions could be as much as $60bn.
However, those estimates may be reduced after the prime minister, Scott Morrison, on Monday announced the government would subsidise wages in a bid to keep people employed.
Some funds, led by the union-and-employer-controlled industry sector, want the government to underwrite a “liquidity backstop facility” that would provide immediate cash to pay withdrawals. For-profit funds oppose the idea.
There is no suggestion any super fund is at risk of collapse. Rather, industry sources fear that the forced sale of assets would crush their value, crimping returns for people who remain in the fund.
RBA officials are believed to be concerned that smaller funds with smaller average member balances would be more likely to be forced into an asset fire-sale.
It is believed bank officials have considered a range of options.
As Guardian Australia has reported, one option favoured by some in the super industry is that the RBA would lend money to funds, which would put up some of their assets as collateral in much the same way as a house secures a home loan from a bank.
When the crisis passes, the funds would pay off their loan and the RBA would return them their assets.
The RBA already does similar things for banks by purchasing baskets of assets such as government bonds and home loans from banks and selling them back. But it is understood extending the favour to super funds would be considerably more complicated for both legal and practical reasons.
In an opinion article in Nine newspapers on Monday, Bragg, a longtime critic of Australia’s compulsory super system, said “mismanagement” was to blame if funds did not immediately have cash on hand to meet the expected flood of redemptions.
However, University of Melbourne finance professor Kevin Davis said Bragg’s criticisms were “unbalanced and unfair” because super funds could not have known the government would suddenly allow a flood of withdrawals.
“I think it’s outrageous to be writing ideological pieces at the moment,” Davis, who served on the Financial System Inquiry in 2013, told Guardian Australia. “And he’s wrong about most of the things he’s saying.”
Hume played down the scale of the potential withdrawals, saying that $27bn would be “less than 1% of a circa $3tn superannuation system” .
She said about $7bn might have to come from selling shares, which was “the equivalent of a single day’s turnover of the ASX”.
But Davis said “massive changes” in the price of shares could happen even without any changing hands. “If everyone thought there was going to be a massive sell-off by super funds, then everyone will adjust their view of prices downwards.”
In a detailed response to Bragg published on his website, Davis said he favoured super funds being allowed to borrow from the RBA.
He said super fund members would then in turn be allowed to borrow cash against their personal balances, “with member repayments of their loan to begin only when their incomes have recovered sufficiently”.
“A zero interest rate could apply in both cases, although I think that would be anathema to senator Bragg.”