WEBVTT - Forget About Early Retirement in Britain 0:00:00.440 --> 0:00:04.840 Pensions, savings, insurance. Okay, it's not the most fun topics, 0:00:04.880 --> 0:00:12.039 but they are important, so follow me here. It turns 0:00:12.080 --> 0:00:14.320 out that a fair number of people are just not 0:00:14.400 --> 0:00:17.120 prepared for retirement. That means that they just won't have 0:00:17.520 --> 0:00:21.120 enough money to live comfortably in their older age. It's 0:00:21.120 --> 0:00:23.759 also important because the government is trying to get more 0:00:23.760 --> 0:00:28.080 involved in how pension pods are being invested. This is 0:00:28.120 --> 0:00:31.120 in the City, Bloomberg's podcast, connecting you to the conversations 0:00:31.160 --> 0:00:33.159 at the heart of the City of London. I'm from 0:00:33.200 --> 0:00:36.520 sin Lacwa. Now this week we talk about investing in pensions. 0:00:36.800 --> 0:00:39.680 We also talk about the over fifties dropping out of 0:00:39.680 --> 0:00:42.360 the labor force and how to get them back to work. 0:00:42.560 --> 0:00:44.800 We do all of that with Andy Briggs. He's chief 0:00:44.800 --> 0:00:48.720 executive of Phoenix, one of the UK's largest long term 0:00:48.760 --> 0:00:53.960 savings and retirement businesses. You've been working in the City 0:00:54.000 --> 0:00:56.920 of London for thirty years. How has it changed since 0:00:56.960 --> 0:00:57.600 that first day? 0:00:58.000 --> 0:01:02.680 It was a very male dominated, public school dominated environment, 0:01:03.240 --> 0:01:05.400 and while there's an awful lot still more to be done, 0:01:05.520 --> 0:01:08.080 it's far more inclusive and diverse than it ever was 0:01:08.120 --> 0:01:10.160 when I first started, and I think that's great because 0:01:10.160 --> 0:01:13.080 we just get a far broader range of talent from 0:01:13.160 --> 0:01:15.839 multiple backgrounds and makes it a much better place to work. 0:01:16.319 --> 0:01:19.520 And that was by design from chief executives by the 0:01:19.560 --> 0:01:21.840 government or how did you see the change? 0:01:22.240 --> 0:01:25.880 There's been an element of pressure building from a governance perspective, 0:01:25.920 --> 0:01:28.440 but I think the very best businesses are the ones 0:01:28.560 --> 0:01:31.039 that set out to be truly inclusive and diverse. They 0:01:31.200 --> 0:01:33.759 make better decisions from a broader range of perspectives, they 0:01:33.800 --> 0:01:36.760 better represent their customers, better represent their communities, and they 0:01:36.800 --> 0:01:39.440 perform better. There's a strong body of evidence that says 0:01:39.440 --> 0:01:41.720 they perform better, and it's all dimensions. There's a lot 0:01:41.760 --> 0:01:44.200 of focus on race and ethnicity and on gender, which 0:01:44.240 --> 0:01:46.880 are very important. But I also am a big supporter 0:01:47.040 --> 0:01:50.840 of multi generational workforces, so workforces that have older workers 0:01:50.840 --> 0:01:54.120 and younger workers also perform better the ones that are 0:01:54.160 --> 0:01:56.200 just all older or just all younger. 0:01:55.960 --> 0:01:57.920 Which is why you're also doing a lot of work 0:01:57.960 --> 0:01:59.960 in trying to get the older population back to work. 0:02:00.200 --> 0:02:02.040 Yeah, if the day job running Phoenix Group were the 0:02:02.120 --> 0:02:04.720 UK's largest long term savings in retirement business is helping 0:02:04.720 --> 0:02:08.239 people save more for later life, then the government role 0:02:08.280 --> 0:02:10.480 is create an environment where those that choose to can 0:02:10.520 --> 0:02:12.840 work for longer because that will enable them also to 0:02:12.880 --> 0:02:15.720 be able to earn for longer and get a better 0:02:15.720 --> 0:02:17.919 retirement income as well. So do the two things side 0:02:17.919 --> 0:02:19.880 by side to try and get that outcome that people 0:02:19.919 --> 0:02:23.200 can enjoy their later years and have enough money to 0:02:23.240 --> 0:02:23.480 do so. 0:02:23.960 --> 0:02:26.040 Does the UK have more of a problem than other 0:02:26.240 --> 0:02:29.919 jurisdictions in people dropping off after fifty and not being 0:02:29.919 --> 0:02:31.240 able to come back to the workplace. 0:02:31.760 --> 0:02:33.919 I think the issues that we face in the UK 0:02:34.040 --> 0:02:38.359 are faced by most developed nations with aging populations. Probably 0:02:38.440 --> 0:02:41.680 the differences that there are cultural differences, particularly in places 0:02:41.680 --> 0:02:44.720 like Japan and China, where there's cultural differences around how 0:02:44.760 --> 0:02:47.320 families work and live together. But back to the UK, 0:02:47.760 --> 0:02:50.000 we do a lot of research through our think tank, 0:02:50.040 --> 0:02:52.160 Phoenix Insights, and we did a piece of work a 0:02:52.200 --> 0:02:56.120 while ago on people's saving for retirement. Only one in 0:02:56.200 --> 0:02:58.320 seven people in the UK are doing enough for a 0:02:58.360 --> 0:03:01.240 decent standard living in retirement. That's not a material drop 0:03:01.240 --> 0:03:04.120 off from their pre retirement income. But what's really frightening 0:03:04.280 --> 0:03:07.480 is that four out of ten think they're doing enough 0:03:07.520 --> 0:03:10.280 and they're not. And so the way that plays back 0:03:10.360 --> 0:03:12.600 is that an awful lot of over fifties have dropped 0:03:12.600 --> 0:03:15.680 out of the workplace through the pandemic, but an awful 0:03:15.720 --> 0:03:18.160 lot of them won't have a decent grip on what 0:03:18.200 --> 0:03:20.840 their retirement income might be. And if only they knew, 0:03:21.440 --> 0:03:23.640 then for an awful lot of them, it'll be a 0:03:23.680 --> 0:03:26.560 really good idea to get back into work, to be 0:03:26.639 --> 0:03:29.040 saving more, to be earning more for longer, and then 0:03:29.120 --> 0:03:31.760 get a decent standard living to enjoy the retirement they'd 0:03:31.760 --> 0:03:32.320 like to enjoy. 0:03:32.520 --> 0:03:34.840 So why do the above fifty drop out or have 0:03:34.960 --> 0:03:36.119 dropped out in the pandemic? 0:03:36.560 --> 0:03:39.240 So I think an awful lot of them found that 0:03:39.280 --> 0:03:42.000 through the pandemic they had a lot of care and responsibilities, 0:03:42.080 --> 0:03:44.840 you know, be it children and particularly elderly relatives. So 0:03:44.880 --> 0:03:47.720 one in four of the over fifties have responsibilities for 0:03:48.040 --> 0:03:50.320 caring for elderly relatives, and I think an awful lot 0:03:50.320 --> 0:03:52.680 of them found it just really hard to manage those 0:03:52.680 --> 0:03:55.400 different elements. One other thing I in my government role 0:03:55.440 --> 0:03:57.640 I encourage businesses to do, for example, is to have 0:03:57.680 --> 0:04:00.720 a caress policy and have a flexible working pot. So 0:04:00.760 --> 0:04:03.520 at Phoenix Group, any of our colleagues can get ten 0:04:03.600 --> 0:04:06.800 days paid care as leave per annum. And what it 0:04:06.840 --> 0:04:09.080 means is that those over fifties that have those care 0:04:09.080 --> 0:04:11.960 and responsibilities don't end up leaving the workplace. They can 0:04:12.000 --> 0:04:14.119 work flexibly, they can take the time off they need 0:04:14.160 --> 0:04:17.480 to support their elderly loved ones because sadly or too 0:04:17.560 --> 0:04:20.520 often the elderly loved ones then will pass away, but 0:04:20.600 --> 0:04:23.040 those over fifties won't come back into the workplace. If 0:04:23.200 --> 0:04:25.200 the over fifties fall out the workplace, they're the group 0:04:25.320 --> 0:04:26.480 least likely to come back in. 0:04:26.760 --> 0:04:29.400 But do you think some of these initiatives or incentives 0:04:29.520 --> 0:04:33.640 will actually make a meaningful difference to labor participation and 0:04:33.720 --> 0:04:36.760 also trying to get the above fifty that usually also 0:04:36.839 --> 0:04:39.200 have quite a lot of gravitas right they've worked before, 0:04:39.360 --> 0:04:42.320 they can guide lots of transfer scales. Yeah. 0:04:42.520 --> 0:04:46.160 I took on this role six years ago and at 0:04:46.200 --> 0:04:48.480 the time there were nine million over fifties in work 0:04:48.600 --> 0:04:52.040 and we set a target of getting a million more 0:04:52.240 --> 0:04:54.680 so nine million up to ten million over five years. 0:04:55.040 --> 0:04:58.080 We basically got there in three years, just before the pandemic. 0:04:58.160 --> 0:05:01.560 So that shows exactly the better fits of getting employers 0:05:01.600 --> 0:05:05.160 to focus on retaining their over fifties, recruiting over fifties, 0:05:05.600 --> 0:05:08.960 and retraining over fifties with reusable skills in other areas. 0:05:09.360 --> 0:05:11.600 What then happened through the pandemic is about three hundred 0:05:11.640 --> 0:05:14.039 thousand of them fell out of the workplace, and the 0:05:14.120 --> 0:05:16.440 goal now is looking to get some of those that 0:05:16.520 --> 0:05:18.800 want to back in. I mean, ultimately, if someone has 0:05:19.160 --> 0:05:22.120 saved strongly through their life and it's in a position 0:05:22.200 --> 0:05:25.640 to enjoy attractive income in retirement, then from my perspective 0:05:25.680 --> 0:05:27.880 with what they're trying to achieve, that's great. It's those 0:05:27.960 --> 0:05:30.719 that either don't have enough money or think they do 0:05:30.839 --> 0:05:33.840 and they don't actually have enough money create the opportunity 0:05:33.880 --> 0:05:35.560 where they can work if they choose to do. 0:05:35.480 --> 0:05:37.800 So, it's more and more difficult. I think if you're 0:05:37.800 --> 0:05:40.280 working in the city to work from home more than 0:05:40.520 --> 0:05:43.360 one or two days a week, do you see that changing? 0:05:44.000 --> 0:05:47.200 So I do think the pandemic was horrific in many ways. 0:05:47.600 --> 0:05:50.480 So families lost, loved ones, lots of businesses really struggled. 0:05:50.960 --> 0:05:53.760 One thing we did learn about flexible working, and different 0:05:53.839 --> 0:05:56.839 organizations are going in different directions with this, but I 0:05:56.880 --> 0:06:00.039 would say we work far more flexibly now than we 0:06:00.080 --> 0:06:03.839 did before. At Phoenix, We've embraced flexible working. You know, 0:06:03.920 --> 0:06:06.560 lots of our colleagues work flexibly in lots of different ways. 0:06:07.080 --> 0:06:09.440 It really needs to focus on getting the business outcome. 0:06:09.520 --> 0:06:11.280 So there will be some things that are best done 0:06:11.320 --> 0:06:13.720 in an office face to face, but it really if 0:06:13.720 --> 0:06:16.120 you focus on getting the right business outcome and then 0:06:16.240 --> 0:06:19.960 recognize that people have complex lives and work flexibly around 0:06:20.000 --> 0:06:22.720 those complex lives. As our view of how you get 0:06:22.720 --> 0:06:25.159 the best talent and get them to perform as best 0:06:25.160 --> 0:06:26.920 as they can for our customers and shareholders. 0:06:28.720 --> 0:06:31.680 And we're looking at global financial centers across the world. 0:06:31.920 --> 0:06:34.480 How does London stack up. It was smaller than it got, 0:06:34.520 --> 0:06:38.280 bigger than it got, smaller, maybe more inclusive. Where are 0:06:38.279 --> 0:06:39.480 we now in twenty twenty three. 0:06:39.600 --> 0:06:43.239 Yeah, so it's clearly one of the major global financial centers. 0:06:43.320 --> 0:06:46.120 We have huge advantages in London in terms of talent, 0:06:46.240 --> 0:06:48.599 in terms of you know, strong regulation, the way the 0:06:48.640 --> 0:06:51.240 markets work. If I just take the pension sector, my 0:06:51.600 --> 0:06:54.359 sector over three trending of assets, so it's the second 0:06:54.480 --> 0:06:58.200 largest pensions nation globally. That gives us, you know, real 0:06:58.240 --> 0:07:00.760 advantage in terms of what we can offer customers and 0:07:00.800 --> 0:07:03.200 the benefits for customers, but also how we invest that 0:07:03.279 --> 0:07:05.560 money to the benefit of broader society. 0:07:05.880 --> 0:07:07.679 Do you look at some of the other big pension 0:07:07.720 --> 0:07:11.160 funds in Canada or Texas or the teachers with envy. 0:07:11.480 --> 0:07:13.640 I think they have moved ahead of us in a 0:07:13.720 --> 0:07:15.600 number of areas, and I think we've got some catching 0:07:15.640 --> 0:07:16.840 up to do, which is what a lot of the 0:07:16.880 --> 0:07:19.480 regulatory reform and focuses on at the moment. So if 0:07:19.480 --> 0:07:22.960 I give a specific example, only nine percent of that 0:07:23.000 --> 0:07:26.440 three trending of UK pensions assets are invested into what 0:07:26.480 --> 0:07:29.640 I call productive assets, so things like private equity, private debt, 0:07:29.680 --> 0:07:33.400 things that have a multiplicative benefit on economic growth. So 0:07:33.440 --> 0:07:36.680 only nine percent in the UK. The other seven largest 0:07:36.720 --> 0:07:39.520 pensions nations globally, their equivalent of our nine percent is 0:07:39.560 --> 0:07:43.240 twenty three percent, So they're investing far more in that way. 0:07:43.520 --> 0:07:46.120 And there's two outcomes of that. One is in terms 0:07:46.120 --> 0:07:48.720 of customer returns. If you look over the last ten years, 0:07:49.240 --> 0:07:52.440 the real return for pension savers in the UK has 0:07:52.480 --> 0:07:56.440 been four percent. Their Canadian and Australian counterparts have been 0:07:56.520 --> 0:07:58.680 five point two and five point five percent over that 0:07:58.760 --> 0:08:01.920 same ten year period. That basically means the Canadians and 0:08:01.920 --> 0:08:04.240 the Australians are going to get a third higher retirement 0:08:04.280 --> 0:08:07.000 income if that carries on, and it's basically because we're 0:08:07.040 --> 0:08:09.480 investing less into these productive assets, but the. 0:08:09.400 --> 0:08:11.560 Productive assets also have a little bit of a downfall. 0:08:11.640 --> 0:08:13.080 So there was a bit of a sweet spot over 0:08:13.080 --> 0:08:15.440 the last ten years because of cheap money, because of 0:08:15.880 --> 0:08:19.560 some of the tax environment the following interest rates which 0:08:19.600 --> 0:08:23.080 we no longer have. So is now actually not the 0:08:23.120 --> 0:08:25.280 most ideal time to be investing in those assets. 0:08:25.360 --> 0:08:27.480 Yes, So what I'd say is we should be thinking 0:08:27.520 --> 0:08:30.040 about pensions on a long term basis, So there are 0:08:30.080 --> 0:08:32.839 inevitably there'll be points in time where you think now 0:08:32.880 --> 0:08:35.400 isn't the right time to invest in that particular asset, 0:08:35.960 --> 0:08:37.680 but we should be looking at it over a long 0:08:37.760 --> 0:08:40.240 term period. And I think what's really important is from 0:08:40.240 --> 0:08:43.520 a customer perspective, we're only talking about five percent of 0:08:43.559 --> 0:08:47.280 their pension savings going into these types of investments, and 0:08:47.360 --> 0:08:50.120 what's really important is that they have a very very broad, 0:08:50.200 --> 0:08:54.840 diverse range of investments, multiple sectors, multiple vintagers. And yes, 0:08:54.880 --> 0:08:57.760 you definitely would be selective about when you chose to invest. 0:08:57.840 --> 0:09:00.320 It wouldn't all switch overnight, it would be able to 0:09:00.360 --> 0:09:02.360 there wouldn't be the range of investments available in the 0:09:02.440 --> 0:09:05.440 UK today it will take a multiple years to build 0:09:05.480 --> 0:09:06.319 up to this position. 0:09:06.760 --> 0:09:09.439 We had an interview with Governor Andrew Bailey at the 0:09:09.480 --> 0:09:12.120 last press conference, and actually speaking to me, he was 0:09:12.200 --> 0:09:16.280 quite clear that it's unlikely that we return to the 0:09:16.360 --> 0:09:18.040 low interest rate environment that we had in the last 0:09:18.080 --> 0:09:21.040 ten years. How much pressure does that put again on 0:09:21.160 --> 0:09:23.400 those kind of assets that you want to be invested in. 0:09:23.800 --> 0:09:26.640 So generally, i'd say that that really low interest rate 0:09:26.720 --> 0:09:29.400 environment I don't think was particularly healthy for the economy. 0:09:29.480 --> 0:09:32.680 I think it's helpful for savers to have a decent 0:09:32.800 --> 0:09:35.800 return and also, you know, for borrowing to come at 0:09:35.800 --> 0:09:37.760 a price. So I actually think interest rates at a 0:09:37.840 --> 0:09:40.319 higher level is no bad thing for the broader economy. 0:09:40.800 --> 0:09:42.480 Right now, there's some shocks. I mean, I have a 0:09:42.520 --> 0:09:46.280 twenty nine year old daughter who is remortgaging next month 0:09:46.679 --> 0:09:48.840 and it's going to cost her an awful lot more exactly, 0:09:49.000 --> 0:09:51.920 So there's some real, real challenges if I take it 0:09:51.920 --> 0:09:55.319 to the insurance sector specifically. What's interesting is actually the 0:09:55.400 --> 0:09:58.120 higher interest rates has led to a real drive in 0:09:58.480 --> 0:10:01.280 corporates wanting to buy out their versus annuity, so that 0:10:01.320 --> 0:10:03.559 market's booming. It's more affordable for more of them. With 0:10:03.640 --> 0:10:07.480 higher interest rates, and also the higher inflation for our 0:10:07.559 --> 0:10:11.120 other big growth businesses workplace pensions and the higher pay 0:10:11.240 --> 0:10:14.200 rise is because most workplace pension schemes are a percentage 0:10:14.200 --> 0:10:17.120 of salary, the contributions are a percentage of salary. We're 0:10:17.120 --> 0:10:20.400 seeing much higher contributions. So actually, specifically for Phoenix, this 0:10:20.559 --> 0:10:23.960 economic environment is really positive to our trading, but obviously 0:10:24.040 --> 0:10:27.040 you know other aspects of society it's more and more challenging. 0:10:27.600 --> 0:10:30.040 So we're coming up really to the one year anniversary 0:10:30.080 --> 0:10:33.920 of loz trust is brief premiership and court Tank's mini 0:10:33.920 --> 0:10:37.000 budget which causes your collapse of Britain's pension funds. Is 0:10:37.000 --> 0:10:38.400 that now a distant memory? 0:10:39.000 --> 0:10:41.480 I think memory lives long in pension funds and in 0:10:41.559 --> 0:10:45.200 financial markets. And I think that the issues that defined 0:10:45.240 --> 0:10:49.520 benefit schemes had with their LDI investments definitely cause a 0:10:49.520 --> 0:10:53.520 lot of concern and it undermines consumer confidence. It undermines 0:10:53.600 --> 0:10:57.200 confidence of overseas investors investing into the UK, and I 0:10:57.200 --> 0:10:59.840 think it's really important we have a decent, long period 0:10:59.880 --> 0:11:03.440 of of stability without those sorts of hiccups to improve 0:11:03.480 --> 0:11:06.640 consumer confidence and improve the confidence in investing in the 0:11:06.720 --> 0:11:08.920 UK from global investors, how you get to. 0:11:08.960 --> 0:11:10.560 Build him and from the moment it's been stable, but 0:11:10.600 --> 0:11:13.960 then inflation, you know Bank of England, the very tight 0:11:14.040 --> 0:11:17.559 labor market. We're looking at elections like how stable can 0:11:17.600 --> 0:11:18.719 the UK economy actually be? 0:11:19.440 --> 0:11:21.880 So I think it's not. Kind of having missteps is 0:11:21.880 --> 0:11:24.920 the most important thing, not having things like the concern 0:11:25.480 --> 0:11:28.359 and meltdown if you like that we saw back last September. 0:11:28.679 --> 0:11:31.520 I mean inflation is something that you know virtually every 0:11:31.520 --> 0:11:35.080 country globally is struggling with. Interest rates are going up globally. 0:11:35.160 --> 0:11:36.880 These are global issues and we need to deal with 0:11:36.920 --> 0:11:39.000 them well in the UK. But they are global issues. 0:11:39.040 --> 0:11:43.359 So I'd say it's stability of government policy the economy, 0:11:43.400 --> 0:11:46.160 recognizing that we live in a global society and global 0:11:46.160 --> 0:11:47.480 impacts will impact on the UK. 0:11:48.120 --> 0:11:49.960 So let's take a little bit of a step back. 0:11:50.160 --> 0:11:52.679 The government has to find a way to grow this economy. 0:11:53.080 --> 0:11:54.600 They need to try and find a way to bring 0:11:54.679 --> 0:11:58.079 investments to startups which could potentially be the companies of 0:11:58.120 --> 0:12:01.880 growth of tomorrow Mansion House speech, which is a big 0:12:01.920 --> 0:12:04.559 deal here in London, the Chancellor are laid out a 0:12:04.600 --> 0:12:08.200 strategy to try and get pension and pension schemes to 0:12:08.240 --> 0:12:11.160 put up to seventy five billion pounds of retirement funds 0:12:11.480 --> 0:12:14.520 to try and kickstart these startups. And Phoenix is one 0:12:14.520 --> 0:12:17.360 of the nine pension providers that have agreed to put 0:12:17.440 --> 0:12:21.600 five percent of retirement funds towards these private investments. And 0:12:21.800 --> 0:12:25.040 are you disappointed that it's only nine pension providers that 0:12:25.280 --> 0:12:27.160 not more companies signed up to this. 0:12:28.160 --> 0:12:30.720 I mean we had a large proportion of the UK 0:12:31.040 --> 0:12:34.120 pension sector sign up, so I think that's positive. I 0:12:34.160 --> 0:12:37.160 think the real key focus needs to be getting the outcome. 0:12:37.760 --> 0:12:40.040 In my thirty years in the sector, I've seen lots 0:12:40.040 --> 0:12:43.080 and lots of initiatives that all sound good, but actually 0:12:43.120 --> 0:12:45.720 when it comes down to it, they haven't led to 0:12:45.760 --> 0:12:48.040 the cut through in the outcome. And I think it's 0:12:48.360 --> 0:12:51.640 really important that we get the strongest returns we can 0:12:52.200 --> 0:12:55.120 for our customers. And I think as an assurance sector 0:12:55.200 --> 0:12:57.400 pension sector, we can play a real role in broader 0:12:57.400 --> 0:12:59.280 society as well, and we should be looking to do 0:12:59.320 --> 0:12:59.960 both those things. 0:13:00.080 --> 0:13:02.120 But what is that a framework or an execution like 0:13:02.160 --> 0:13:02.959 what happens next? 0:13:03.240 --> 0:13:06.000 So there's a series of regulatory changes that are being 0:13:06.120 --> 0:13:08.520 worked through and put through and need to come through 0:13:08.600 --> 0:13:12.120 into practice, and then there's a sort of broader cultural change. 0:13:12.120 --> 0:13:15.400 So the UK pension sector is almost totally focused on 0:13:15.520 --> 0:13:19.000 costs and charges. That's really important, and it's really important 0:13:19.000 --> 0:13:21.280 that charges are as low as they possibly can be, 0:13:21.800 --> 0:13:24.760 but it's the overall outcome for the customer that matters most. 0:13:25.000 --> 0:13:28.680 So historically it's been regulation that has stopped investment into 0:13:28.720 --> 0:13:31.880 some of these private asset classes. But at the moment, 0:13:31.920 --> 0:13:34.560 even if the regulation was fixed, I think you'd see 0:13:34.559 --> 0:13:38.200 an awful lot of situations where the consultants and the 0:13:38.240 --> 0:13:40.320 corporates would say, now I want to keep the charges 0:13:40.360 --> 0:13:42.959 as low as I possibly can, and actually I think 0:13:43.000 --> 0:13:44.760 we need to have a bit of a cultural shift 0:13:44.800 --> 0:13:47.120 to focus on the overall outcome for the customer and 0:13:47.160 --> 0:13:49.800 making the returns net of charges as high as possible. 0:13:50.200 --> 0:13:52.040 Maybe give you a specific example of that in our 0:13:52.080 --> 0:13:56.680 annuity business. Last year we invested two billion pounds of 0:13:56.720 --> 0:14:00.680 basically our purchas innuity money into a liquid assets so 0:14:00.760 --> 0:14:03.680 private debt. Over half of it was sustainable, so it 0:14:03.720 --> 0:14:06.839 was things like social housing, it was things like renewable energy, 0:14:06.840 --> 0:14:09.199 wind farms and so on. So a big investment in 0:14:09.240 --> 0:14:12.520 the broader economy. But our additional return on that was 0:14:12.600 --> 0:14:17.959 seventy basis points above the equivalent risk credit rated public 0:14:18.000 --> 0:14:21.000 debt even after the additional charges. So the charges are 0:14:21.040 --> 0:14:23.880 sort of five times higher in doing private debt rather 0:14:23.880 --> 0:14:26.560 than public debt, But even after those higher charges, the 0:14:26.600 --> 0:14:29.640 return was seventy basis points more. And that basically means 0:14:29.680 --> 0:14:32.320 we can offer a better deal for customers and we 0:14:32.360 --> 0:14:34.000 can make good returns for shareholders. 0:14:34.000 --> 0:14:35.720 But this is on a lot of debt and environment 0:14:35.760 --> 0:14:38.920 where interest rates go up in certain cases. For example, 0:14:38.920 --> 0:14:40.800 if it was commercial real estate, you don't one hundredercent 0:14:40.880 --> 0:14:41.680 know what you're dealing with. 0:14:42.360 --> 0:14:46.000 Yeah, so we only invest in investment grade debt, and 0:14:46.040 --> 0:14:49.120 we only invest into asset classes where we have really 0:14:49.120 --> 0:14:53.080 strong internal capability in our business. So you do the homework, Yeah, 0:14:53.120 --> 0:14:55.640 we do the homework. But also we totally cash flow match. 0:14:55.760 --> 0:14:59.080 And so when you have a portfolio BOK purchased inuities, 0:14:59.120 --> 0:15:01.640 you've basically gone not obligation to pay a series of 0:15:01.680 --> 0:15:04.160 payments over the lifetime of those customers over the next 0:15:04.160 --> 0:15:06.800 sort of thirty forty years. We then get a series 0:15:06.800 --> 0:15:10.040 of assets that exactly cashflow match those so if interest 0:15:10.080 --> 0:15:12.760 rates go up or down, it doesn't matter because effectively 0:15:12.760 --> 0:15:15.480 the assets and liabilities move in tandem. That was the 0:15:15.560 --> 0:15:18.200 issue with the LDI crisis is that it wasn't cash 0:15:18.200 --> 0:15:20.840 flow matched, and therefore you had all sorts of issues 0:15:20.840 --> 0:15:24.200 coming as a result. As insurance companies, we are cash 0:15:24.200 --> 0:15:27.040 flow matching, so the moving interest rates don't matter. 0:15:27.560 --> 0:15:30.360 Okay, listeners, we're doing this. Buckle up, So we're talking 0:15:30.440 --> 0:15:33.000 solvency too. I think my producer wants to hand everyone 0:15:33.360 --> 0:15:36.800 shots to keep us alort. But it's pretty technical, but 0:15:36.920 --> 0:15:39.240 it is important. So just putting in as simple as 0:15:39.240 --> 0:15:43.440 possible solvency too. This is a nightmare for a lot 0:15:43.440 --> 0:15:46.160 of the insurance companies. It's a set of rules that 0:15:46.240 --> 0:15:48.880 insurers need to comply with so that insurance companies are 0:15:48.920 --> 0:15:51.400 more resilient in the wake of the global financial crisis. 0:15:51.400 --> 0:15:54.200 But Andy, you think, basically the rules just go too far. 0:15:54.800 --> 0:15:57.239 So I think the key thing we're looking at insolvency 0:15:57.280 --> 0:15:59.560 too is I talked to a moment ago about the 0:15:59.600 --> 0:16:02.480 two and we invested last year into this private debt. 0:16:02.720 --> 0:16:05.760 We could invest far more into that private debt than 0:16:05.760 --> 0:16:08.240 we do currently, and it will be really beneficial to 0:16:08.240 --> 0:16:10.760 broader society in the economy and it will be beneficial 0:16:10.760 --> 0:16:14.800 to customers because of most higher returns, but if the 0:16:15.200 --> 0:16:19.040 current Sultcy two regulations are quite restrictive as to what 0:16:19.080 --> 0:16:21.280 you can invest in. So what we're looking to do 0:16:21.520 --> 0:16:25.440 is still keep everything very managed and risk controlled and safe, 0:16:25.880 --> 0:16:28.120 but have a broader range of investments that we can 0:16:28.160 --> 0:16:30.920 invest into under the Saltancy two regulations so that we 0:16:30.960 --> 0:16:34.360 can get better returns for customers and do more good 0:16:34.360 --> 0:16:35.160 in broader society. 0:16:35.200 --> 0:16:37.960 I haven't met one chief executive who likes Solvency two yet. 0:16:38.520 --> 0:16:41.240 Will it be tweaked to where if we talk to 0:16:41.280 --> 0:16:43.360 each other in like two years, how different will that 0:16:43.440 --> 0:16:44.080 landscape blog? 0:16:44.640 --> 0:16:47.160 So, I think one of the challenges with the Saltcy 0:16:47.160 --> 0:16:49.640 two regime is, as we were part of the EU 0:16:49.680 --> 0:16:51.600 at the time, you were trying to come up with 0:16:51.680 --> 0:16:55.320 a regulatory regime that worked for twenty eight different European countries. 0:16:55.600 --> 0:16:58.080 Now the reality is in the world of pensions, each 0:16:58.160 --> 0:17:02.080 country is different. Any player that has businesses across multiple 0:17:02.080 --> 0:17:05.080 countries in Europe get very little synergistic benefit. They're all 0:17:05.080 --> 0:17:07.800 different markets, and yet you're trying to have a framework 0:17:07.880 --> 0:17:10.399 that suits all twenty eight. Inevitably, it's not going to 0:17:10.400 --> 0:17:12.840 be ideal for the UK. So what we're looking to 0:17:12.880 --> 0:17:15.359 do with the Saltcy two reform is make the changes 0:17:15.440 --> 0:17:18.240 that work well for the UK and suit the UK 0:17:18.359 --> 0:17:20.720 market which is different to the other European markets. And 0:17:20.800 --> 0:17:23.399 if we can get those changes through and in place, 0:17:23.480 --> 0:17:25.680 then I think it will be much better. We shouldn't 0:17:25.720 --> 0:17:26.400 lose sight of them. 0:17:26.400 --> 0:17:27.200 Can we get them through? 0:17:27.520 --> 0:17:30.800 Well? Yeah, that it's progressing well. I would say We've 0:17:30.800 --> 0:17:33.120 had a consultation on a whole load of them from 0:17:33.119 --> 0:17:36.359 the regulators back in July. We've got a consultation on 0:17:36.400 --> 0:17:39.600 the balance expected in September. But we need to drive 0:17:39.640 --> 0:17:42.280 through to the outcome. So the insurance sector as a whole. 0:17:42.320 --> 0:17:44.840 The Association of British Insurers have said with the right 0:17:44.920 --> 0:17:48.200 salvemnty two reforms, we can invest another one hundred billion 0:17:48.400 --> 0:17:52.200 into things like renewable energy, wind farms, social housing over 0:17:52.240 --> 0:17:55.000 the next ten to fifteen years and that's the size 0:17:55.000 --> 0:17:57.280 of the prize and what we need to focus on 0:17:57.400 --> 0:17:59.879 is getting that outcome so that money does flow in 0:18:00.160 --> 0:18:04.720 those areas. So changing regulatory rules is important part of it, 0:18:04.760 --> 0:18:06.399 but it has got to get to the outcome. It 0:18:06.440 --> 0:18:09.840 can't just be a theoretical exercise with the regulatory rules. 0:18:10.160 --> 0:18:12.840 Given all the new regulation for the City of London, 0:18:12.960 --> 0:18:14.800 what the government is trying to put in place, a 0:18:14.960 --> 0:18:17.080 mansion house or some of the other things, do you 0:18:17.119 --> 0:18:18.400 think the city's taking enough risk. 0:18:19.119 --> 0:18:21.560 I think it's a good question. I think that there 0:18:21.640 --> 0:18:24.200 is a high level of risk aversion. I think it's 0:18:24.200 --> 0:18:28.879 a difficult balance because having a strong regulatory environment, you know, 0:18:29.040 --> 0:18:32.560 having a high level of trust from customers and global 0:18:32.600 --> 0:18:36.280 markets in it, being a really well governed, well run, 0:18:36.440 --> 0:18:40.800 well regulated city and companies I think is important. On 0:18:40.840 --> 0:18:43.000 the other hand, I think you can swing that pendulum 0:18:43.000 --> 0:18:45.120 too far. And a great example is what we're talking 0:18:45.119 --> 0:18:47.600 about earlier on the mansion house compact. You know, our 0:18:47.640 --> 0:18:52.040 customers are getting lower retirement incomes because we invest their 0:18:52.040 --> 0:18:55.040 money very conservatively on their behalf. And I think there 0:18:55.040 --> 0:18:58.200 are opportunities to take more risk in a very calculated 0:18:58.240 --> 0:19:01.200 and sensible way that will lead to outcomes for customers. 0:19:01.960 --> 0:19:04.760 Risk taking is such a difficult perception because it's so 0:19:05.400 --> 0:19:07.560 depending on who you are as a person, Like how 0:19:07.600 --> 0:19:09.760 have you navigated risk taking through your career? 0:19:10.119 --> 0:19:12.840