Another obstacle for the Superannuation Industry

CPS 511 - What is it and what impacts can we expect?

‍As we move further into a new financial year for many of the Australian superannuation and industry funds, we will now see how impactful the CPS 511 will be to them, especially as several are still looking to further develop their investment teams here and overseas.

For a sector that has sometimes struggled to attract and retain the higher performers and top tier talent, this may present as an additional hurdle…and begs several questions including: we will see an uptick in base salaries paid by super funds as a result?

So what is CPS 511?

‍Essentially, the Prudential Standard was created to ensure that APRA-regulated entities maintain remuneration arrangements which appropriately incentivise individuals to prudently manage the risks they are responsible for, and that there are appropriate consequences for poor risk outcomes.

Full details on the standard and breakdown can be found here: https://lnkd.in/g7S37A88

‍What impacts will we see?

‍An impact on remuneration, specifically deferral programs. This isn’t necessarily new territory for many financial institutions - many of the IB’s have deferral programs in place - but for the superannuation and industry funds this is a newly trodden path.

What will these deferrals look like and who will it materially effect?

‍Annual STI’s will now be subject to 6 year, 5 year and 4 year deferral periods. So if you’re moving to a super fund and already taking a pay cut to do so, it will take many a minimum of 4 years to receive the full bonus awarded in that year. A sobering prospect. Although it appears this won’t apply to everyone in the investment team. Our understanding is that this will, at this stage, affect the C-Suite, executive leadership team, and senior members of the investment team.

What will be the outcome?

‍Superannuation and industry funds already have an uphill battle when it comes to being competitive on total compensation, but adding in the deferral sting in the tail will surely make it even harder to attract and retain talent. This might prove especially true when looking to build out into overseas locations like New York and London where the super funds don’t have the same brand recognition they do locally. Will we see an increase in fixed compensation versus at bonus ratio? Will the build-out of internal investment teams slow down? How does this impact overseas expansion and hires, where the compensation can be more than double Australia-based similar roles?

We’d love to hear your views, let us know what you think.