Speaker 1: Pensions, savings, insurance. Okay, it's not the most fun topics,
Speaker 1: but they are important, so follow me here. It turns
Speaker 1: out that a fair number of people are just not
Speaker 1: prepared for retirement. That means that they just won't have
Speaker 1: enough money to live comfortably in their older age. It's
Speaker 1: also important because the government is trying to get more
Speaker 1: involved in how pension pods are being invested. This is
Speaker 1: in the City, Bloomberg's podcast, connecting you to the conversations
Speaker 1: at the heart of the City of London. I'm from
Speaker 1: sin Lacwa. Now this week we talk about investing in pensions.
Speaker 1: We also talk about the over fifties dropping out of
Speaker 1: the labor force and how to get them back to work.
Speaker 1: We do all of that with Andy Briggs. He's chief
Speaker 1: executive of Phoenix, one of the UK's largest long term
Speaker 1: savings and retirement businesses. You've been working in the City
Speaker 1: of London for thirty years. How has it changed since
Speaker 1: that first day?
Speaker 2: It was a very male dominated, public school dominated environment,
Speaker 2: and while there's an awful lot still more to be done,
Speaker 2: it's far more inclusive and diverse than it ever was
Speaker 2: when I first started, and I think that's great because
Speaker 2: we just get a far broader range of talent from
Speaker 2: multiple backgrounds and makes it a much better place to work.
Speaker 1: And that was by design from chief executives by the
Speaker 1: government or how did you see the change?
Speaker 2: There's been an element of pressure building from a governance perspective,
Speaker 2: but I think the very best businesses are the ones
Speaker 2: that set out to be truly inclusive and diverse. They
Speaker 2: make better decisions from a broader range of perspectives, they
Speaker 2: better represent their customers, better represent their communities, and they
Speaker 2: perform better. There's a strong body of evidence that says
Speaker 2: they perform better, and it's all dimensions. There's a lot
Speaker 2: of focus on race and ethnicity and on gender, which
Speaker 2: are very important. But I also am a big supporter
Speaker 2: of multi generational workforces, so workforces that have older workers
Speaker 2: and younger workers also perform better the ones that are
Speaker 2: just all older or just all younger.
Speaker 1: Which is why you're also doing a lot of work
Speaker 1: in trying to get the older population back to work.
Speaker 2: Yeah, if the day job running Phoenix Group were the
Speaker 2: UK's largest long term savings in retirement business is helping
Speaker 2: people save more for later life, then the government role
Speaker 2: is create an environment where those that choose to can
Speaker 2: work for longer because that will enable them also to
Speaker 2: be able to earn for longer and get a better
Speaker 2: retirement income as well. So do the two things side
Speaker 2: by side to try and get that outcome that people
Speaker 2: can enjoy their later years and have enough money to
Speaker 2: do so.
Speaker 1: Does the UK have more of a problem than other
Speaker 1: jurisdictions in people dropping off after fifty and not being
Speaker 1: able to come back to the workplace.
Speaker 2: I think the issues that we face in the UK
Speaker 2: are faced by most developed nations with aging populations. Probably
Speaker 2: the differences that there are cultural differences, particularly in places
Speaker 2: like Japan and China, where there's cultural differences around how
Speaker 2: families work and live together. But back to the UK,
Speaker 2: we do a lot of research through our think tank,
Speaker 2: Phoenix Insights, and we did a piece of work a
Speaker 2: while ago on people's saving for retirement. Only one in
Speaker 2: seven people in the UK are doing enough for a
Speaker 2: decent standard living in retirement. That's not a material drop
Speaker 2: off from their pre retirement income. But what's really frightening
Speaker 2: is that four out of ten think they're doing enough
Speaker 2: and they're not. And so the way that plays back
Speaker 2: is that an awful lot of over fifties have dropped
Speaker 2: out of the workplace through the pandemic, but an awful
Speaker 2: lot of them won't have a decent grip on what
Speaker 2: their retirement income might be. And if only they knew,
Speaker 2: then for an awful lot of them, it'll be a
Speaker 2: really good idea to get back into work, to be
Speaker 2: saving more, to be earning more for longer, and then
Speaker 2: get a decent standard living to enjoy the retirement they'd
Speaker 2: like to enjoy.
Speaker 1: So why do the above fifty drop out or have
Speaker 1: dropped out in the pandemic?
Speaker 2: So I think an awful lot of them found that
Speaker 2: through the pandemic they had a lot of care and responsibilities,
Speaker 2: you know, be it children and particularly elderly relatives. So
Speaker 2: one in four of the over fifties have responsibilities for
Speaker 2: caring for elderly relatives, and I think an awful lot
Speaker 2: of them found it just really hard to manage those
Speaker 2: different elements. One other thing I in my government role
Speaker 2: I encourage businesses to do, for example, is to have
Speaker 2: a caress policy and have a flexible working pot. So
Speaker 2: at Phoenix Group, any of our colleagues can get ten
Speaker 2: days paid care as leave per annum. And what it
Speaker 2: means is that those over fifties that have those care
Speaker 2: and responsibilities don't end up leaving the workplace. They can
Speaker 2: work flexibly, they can take the time off they need
Speaker 2: to support their elderly loved ones because sadly or too
Speaker 2: often the elderly loved ones then will pass away, but
Speaker 2: those over fifties won't come back into the workplace. If
Speaker 2: the over fifties fall out the workplace, they're the group
Speaker 2: least likely to come back in.
Speaker 1: But do you think some of these initiatives or incentives
Speaker 1: will actually make a meaningful difference to labor participation and
Speaker 1: also trying to get the above fifty that usually also
Speaker 1: have quite a lot of gravitas right they've worked before,
Speaker 1: they can guide lots of transfer scales. Yeah.
Speaker 2: I took on this role six years ago and at
Speaker 2: the time there were nine million over fifties in work
Speaker 2: and we set a target of getting a million more
Speaker 2: so nine million up to ten million over five years.
Speaker 2: We basically got there in three years, just before the pandemic.
Speaker 2: So that shows exactly the better fits of getting employers
Speaker 2: to focus on retaining their over fifties, recruiting over fifties,
Speaker 2: and retraining over fifties with reusable skills in other areas.
Speaker 2: What then happened through the pandemic is about three hundred
Speaker 2: thousand of them fell out of the workplace, and the
Speaker 2: goal now is looking to get some of those that
Speaker 2: want to back in. I mean, ultimately, if someone has
Speaker 2: saved strongly through their life and it's in a position
Speaker 2: to enjoy attractive income in retirement, then from my perspective
Speaker 2: with what they're trying to achieve, that's great. It's those
Speaker 2: that either don't have enough money or think they do
Speaker 2: and they don't actually have enough money create the opportunity
Speaker 2: where they can work if they choose to do.
Speaker 1: So, it's more and more difficult. I think if you're
Speaker 1: working in the city to work from home more than
Speaker 1: one or two days a week, do you see that changing?
Speaker 2: So I do think the pandemic was horrific in many ways.
Speaker 2: So families lost, loved ones, lots of businesses really struggled.
Speaker 2: One thing we did learn about flexible working, and different
Speaker 2: organizations are going in different directions with this, but I
Speaker 2: would say we work far more flexibly now than we
Speaker 2: did before. At Phoenix, We've embraced flexible working. You know,
Speaker 2: lots of our colleagues work flexibly in lots of different ways.
Speaker 2: It really needs to focus on getting the business outcome.
Speaker 2: So there will be some things that are best done
Speaker 2: in an office face to face, but it really if
Speaker 2: you focus on getting the right business outcome and then
Speaker 2: recognize that people have complex lives and work flexibly around
Speaker 2: those complex lives. As our view of how you get
Speaker 2: the best talent and get them to perform as best
Speaker 2: as they can for our customers and shareholders.
Speaker 1: And we're looking at global financial centers across the world.
Speaker 1: How does London stack up. It was smaller than it got,
Speaker 1: bigger than it got, smaller, maybe more inclusive. Where are
Speaker 1: we now in twenty twenty three.
Speaker 2: Yeah, so it's clearly one of the major global financial centers.
Speaker 2: We have huge advantages in London in terms of talent,
Speaker 2: in terms of you know, strong regulation, the way the
Speaker 2: markets work. If I just take the pension sector, my
Speaker 2: sector over three trending of assets, so it's the second
Speaker 2: largest pensions nation globally. That gives us, you know, real
Speaker 2: advantage in terms of what we can offer customers and
Speaker 2: the benefits for customers, but also how we invest that
Speaker 2: money to the benefit of broader society.
Speaker 1: Do you look at some of the other big pension
Speaker 1: funds in Canada or Texas or the teachers with envy.
Speaker 2: I think they have moved ahead of us in a
Speaker 2: number of areas, and I think we've got some catching
Speaker 2: up to do, which is what a lot of the
Speaker 2: regulatory reform and focuses on at the moment. So if
Speaker 2: I give a specific example, only nine percent of that
Speaker 2: three trending of UK pensions assets are invested into what
Speaker 2: I call productive assets, so things like private equity, private debt,
Speaker 2: things that have a multiplicative benefit on economic growth. So
Speaker 2: only nine percent in the UK. The other seven largest
Speaker 2: pensions nations globally, their equivalent of our nine percent is
Speaker 2: twenty three percent, So they're investing far more in that way.
Speaker 2: And there's two outcomes of that. One is in terms
Speaker 2: of customer returns. If you look over the last ten years,
Speaker 2: the real return for pension savers in the UK has
Speaker 2: been four percent. Their Canadian and Australian counterparts have been
Speaker 2: five point two and five point five percent over that
Speaker 2: same ten year period. That basically means the Canadians and
Speaker 2: the Australians are going to get a third higher retirement
Speaker 2: income if that carries on, and it's basically because we're
Speaker 2: investing less into these productive assets, but the.
Speaker 1: Productive assets also have a little bit of a downfall.
Speaker 1: So there was a bit of a sweet spot over
Speaker 1: the last ten years because of cheap money, because of
Speaker 1: some of the tax environment the following interest rates which
Speaker 1: we no longer have. So is now actually not the
Speaker 1: most ideal time to be investing in those assets.
Speaker 2: Yes, So what I'd say is we should be thinking
Speaker 2: about pensions on a long term basis, So there are
Speaker 2: inevitably there'll be points in time where you think now
Speaker 2: isn't the right time to invest in that particular asset,
Speaker 2: but we should be looking at it over a long
Speaker 2: term period. And I think what's really important is from
Speaker 2: a customer perspective, we're only talking about five percent of
Speaker 2: their pension savings going into these types of investments, and
Speaker 2: what's really important is that they have a very very broad,
Speaker 2: diverse range of investments, multiple sectors, multiple vintagers. And yes,
Speaker 2: you definitely would be selective about when you chose to invest.
Speaker 2: It wouldn't all switch overnight, it would be able to
Speaker 2: there wouldn't be the range of investments available in the
Speaker 2: UK today it will take a multiple years to build
Speaker 2: up to this position.
Speaker 1: We had an interview with Governor Andrew Bailey at the
Speaker 1: last press conference, and actually speaking to me, he was
Speaker 1: quite clear that it's unlikely that we return to the
Speaker 1: low interest rate environment that we had in the last
Speaker 1: ten years. How much pressure does that put again on
Speaker 1: those kind of assets that you want to be invested in.
Speaker 2: So generally, i'd say that that really low interest rate
Speaker 2: environment I don't think was particularly healthy for the economy.
Speaker 2: I think it's helpful for savers to have a decent
Speaker 2: return and also, you know, for borrowing to come at
Speaker 2: a price. So I actually think interest rates at a
Speaker 2: higher level is no bad thing for the broader economy.
Speaker 2: Right now, there's some shocks. I mean, I have a
Speaker 2: twenty nine year old daughter who is remortgaging next month
Speaker 2: and it's going to cost her an awful lot more exactly,
Speaker 2: So there's some real, real challenges if I take it
Speaker 2: to the insurance sector specifically. What's interesting is actually the
Speaker 2: higher interest rates has led to a real drive in
Speaker 2: corporates wanting to buy out their versus annuity, so that
Speaker 2: market's booming. It's more affordable for more of them. With
Speaker 2: higher interest rates, and also the higher inflation for our
Speaker 2: other big growth businesses workplace pensions and the higher pay
Speaker 2: rise is because most workplace pension schemes are a percentage
Speaker 2: of salary, the contributions are a percentage of salary. We're
Speaker 2: seeing much higher contributions. So actually, specifically for Phoenix, this
Speaker 2: economic environment is really positive to our trading, but obviously
Speaker 2: you know other aspects of society it's more and more challenging.
Speaker 1: So we're coming up really to the one year anniversary
Speaker 1: of loz trust is brief premiership and court Tank's mini
Speaker 1: budget which causes your collapse of Britain's pension funds. Is
Speaker 1: that now a distant memory?
Speaker 2: I think memory lives long in pension funds and in
Speaker 2: financial markets. And I think that the issues that defined
Speaker 2: benefit schemes had with their LDI investments definitely cause a
Speaker 2: lot of concern and it undermines consumer confidence. It undermines
Speaker 2: confidence of overseas investors investing into the UK, and I
Speaker 2: think it's really important we have a decent, long period
Speaker 2: of of stability without those sorts of hiccups to improve
Speaker 2: consumer confidence and improve the confidence in investing in the
Speaker 2: UK from global investors, how you get to.
Speaker 1: Build him and from the moment it's been stable, but
Speaker 1: then inflation, you know Bank of England, the very tight
Speaker 1: labor market. We're looking at elections like how stable can
Speaker 1: the UK economy actually be?
Speaker 2: So I think it's not. Kind of having missteps is
Speaker 2: the most important thing, not having things like the concern
Speaker 2: and meltdown if you like that we saw back last September.
Speaker 2: I mean inflation is something that you know virtually every
Speaker 2: country globally is struggling with. Interest rates are going up globally.
Speaker 2: These are global issues and we need to deal with
Speaker 2: them well in the UK. But they are global issues.
Speaker 2: So I'd say it's stability of government policy the economy,
Speaker 2: recognizing that we live in a global society and global
Speaker 2: impacts will impact on the UK.
Speaker 1: So let's take a little bit of a step back.
Speaker 1: The government has to find a way to grow this economy.
Speaker 1: They need to try and find a way to bring
Speaker 1: investments to startups which could potentially be the companies of
Speaker 1: growth of tomorrow Mansion House speech, which is a big
Speaker 1: deal here in London, the Chancellor are laid out a
Speaker 1: strategy to try and get pension and pension schemes to
Speaker 1: put up to seventy five billion pounds of retirement funds
Speaker 1: to try and kickstart these startups. And Phoenix is one
Speaker 1: of the nine pension providers that have agreed to put
Speaker 1: five percent of retirement funds towards these private investments. And
Speaker 1: are you disappointed that it's only nine pension providers that
Speaker 1: not more companies signed up to this.
Speaker 2: I mean we had a large proportion of the UK
Speaker 2: pension sector sign up, so I think that's positive. I
Speaker 2: think the real key focus needs to be getting the outcome.
Speaker 2: In my thirty years in the sector, I've seen lots
Speaker 2: and lots of initiatives that all sound good, but actually
Speaker 2: when it comes down to it, they haven't led to
Speaker 2: the cut through in the outcome. And I think it's
Speaker 2: really important that we get the strongest returns we can
Speaker 2: for our customers. And I think as an assurance sector
Speaker 2: pension sector, we can play a real role in broader
Speaker 2: society as well, and we should be looking to do
Speaker 2: both those things.
Speaker 1: But what is that a framework or an execution like
Speaker 1: what happens next?
Speaker 2: So there's a series of regulatory changes that are being
Speaker 2: worked through and put through and need to come through
Speaker 2: into practice, and then there's a sort of broader cultural change.
Speaker 2: So the UK pension sector is almost totally focused on
Speaker 2: costs and charges. That's really important, and it's really important
Speaker 2: that charges are as low as they possibly can be,
Speaker 2: but it's the overall outcome for the customer that matters most.
Speaker 2: So historically it's been regulation that has stopped investment into
Speaker 2: some of these private asset classes. But at the moment,
Speaker 2: even if the regulation was fixed, I think you'd see
Speaker 2: an awful lot of situations where the consultants and the
Speaker 2: corporates would say, now I want to keep the charges
Speaker 2: as low as I possibly can, and actually I think
Speaker 2: we need to have a bit of a cultural shift
Speaker 2: to focus on the overall outcome for the customer and
Speaker 2: making the returns net of charges as high as possible.
Speaker 2: Maybe give you a specific example of that in our
Speaker 2: annuity business. Last year we invested two billion pounds of
Speaker 2: basically our purchas innuity money into a liquid assets so
Speaker 2: private debt. Over half of it was sustainable, so it
Speaker 2: was things like social housing, it was things like renewable energy,
Speaker 2: wind farms and so on. So a big investment in
Speaker 2: the broader economy. But our additional return on that was
Speaker 2: seventy basis points above the equivalent risk credit rated public
Speaker 2: debt even after the additional charges. So the charges are
Speaker 2: sort of five times higher in doing private debt rather
Speaker 2: than public debt, But even after those higher charges, the
Speaker 2: return was seventy basis points more. And that basically means
Speaker 2: we can offer a better deal for customers and we
Speaker 2: can make good returns for shareholders.
Speaker 1: But this is on a lot of debt and environment
Speaker 1: where interest rates go up in certain cases. For example,
Speaker 1: if it was commercial real estate, you don't one hundredercent
Speaker 1: know what you're dealing with.
Speaker 2: Yeah, so we only invest in investment grade debt, and
Speaker 2: we only invest into asset classes where we have really
Speaker 2: strong internal capability in our business. So you do the homework, Yeah,
Speaker 2: we do the homework. But also we totally cash flow match.
Speaker 2: And so when you have a portfolio BOK purchased inuities,
Speaker 2: you've basically gone not obligation to pay a series of
Speaker 2: payments over the lifetime of those customers over the next
Speaker 2: sort of thirty forty years. We then get a series
Speaker 2: of assets that exactly cashflow match those so if interest
Speaker 2: rates go up or down, it doesn't matter because effectively
Speaker 2: the assets and liabilities move in tandem. That was the
Speaker 2: issue with the LDI crisis is that it wasn't cash
Speaker 2: flow matched, and therefore you had all sorts of issues
Speaker 2: coming as a result. As insurance companies, we are cash
Speaker 2: flow matching, so the moving interest rates don't matter.
Speaker 1: Okay, listeners, we're doing this. Buckle up, So we're talking
Speaker 1: solvency too. I think my producer wants to hand everyone
Speaker 1: shots to keep us alort. But it's pretty technical, but
Speaker 1: it is important. So just putting in as simple as
Speaker 1: possible solvency too. This is a nightmare for a lot
Speaker 1: of the insurance companies. It's a set of rules that
Speaker 1: insurers need to comply with so that insurance companies are
Speaker 1: more resilient in the wake of the global financial crisis.
Speaker 1: But Andy, you think, basically the rules just go too far.
Speaker 2: So I think the key thing we're looking at insolvency
Speaker 2: too is I talked to a moment ago about the
Speaker 2: two and we invested last year into this private debt.
Speaker 2: We could invest far more into that private debt than
Speaker 2: we do currently, and it will be really beneficial to
Speaker 2: broader society in the economy and it will be beneficial
Speaker 2: to customers because of most higher returns, but if the
Speaker 2: current Sultcy two regulations are quite restrictive as to what
Speaker 2: you can invest in. So what we're looking to do
Speaker 2: is still keep everything very managed and risk controlled and safe,
Speaker 2: but have a broader range of investments that we can
Speaker 2: invest into under the Saltancy two regulations so that we
Speaker 2: can get better returns for customers and do more good
Speaker 2: in broader society.
Speaker 1: I haven't met one chief executive who likes Solvency two yet.
Speaker 1: Will it be tweaked to where if we talk to
Speaker 1: each other in like two years, how different will that
Speaker 1: landscape blog?
Speaker 2: So, I think one of the challenges with the Saltcy
Speaker 2: two regime is, as we were part of the EU
Speaker 2: at the time, you were trying to come up with
Speaker 2: a regulatory regime that worked for twenty eight different European countries.
Speaker 2: Now the reality is in the world of pensions, each
Speaker 2: country is different. Any player that has businesses across multiple
Speaker 2: countries in Europe get very little synergistic benefit. They're all
Speaker 2: different markets, and yet you're trying to have a framework
Speaker 2: that suits all twenty eight. Inevitably, it's not going to
Speaker 2: be ideal for the UK. So what we're looking to
Speaker 2: do with the Saltcy two reform is make the changes
Speaker 2: that work well for the UK and suit the UK
Speaker 2: market which is different to the other European markets. And
Speaker 2: if we can get those changes through and in place,
Speaker 2: then I think it will be much better. We shouldn't
Speaker 2: lose sight of them.
Speaker 1: Can we get them through?
Speaker 2: Well? Yeah, that it's progressing well. I would say We've
Speaker 2: had a consultation on a whole load of them from
Speaker 2: the regulators back in July. We've got a consultation on
Speaker 2: the balance expected in September. But we need to drive
Speaker 2: through to the outcome. So the insurance sector as a whole.
Speaker 2: The Association of British Insurers have said with the right
Speaker 2: salvemnty two reforms, we can invest another one hundred billion
Speaker 2: into things like renewable energy, wind farms, social housing over
Speaker 2: the next ten to fifteen years and that's the size
Speaker 2: of the prize and what we need to focus on
Speaker 2: is getting that outcome so that money does flow in
Speaker 2: those areas. So changing regulatory rules is important part of it,
Speaker 2: but it has got to get to the outcome. It
Speaker 2: can't just be a theoretical exercise with the regulatory rules.
Speaker 1: Given all the new regulation for the City of London,
Speaker 1: what the government is trying to put in place, a
Speaker 1: mansion house or some of the other things, do you
Speaker 1: think the city's taking enough risk.
Speaker 2: I think it's a good question. I think that there
Speaker 2: is a high level of risk aversion. I think it's
Speaker 2: a difficult balance because having a strong regulatory environment, you know,
Speaker 2: having a high level of trust from customers and global
Speaker 2: markets in it, being a really well governed, well run,
Speaker 2: well regulated city and companies I think is important. On
Speaker 2: the other hand, I think you can swing that pendulum
Speaker 2: too far. And a great example is what we're talking
Speaker 2: about earlier on the mansion house compact. You know, our
Speaker 2: customers are getting lower retirement incomes because we invest their
Speaker 2: money very conservatively on their behalf. And I think there
Speaker 2: are opportunities to take more risk in a very calculated
Speaker 2: and sensible way that will lead to outcomes for customers.
Speaker 1: Risk taking is such a difficult perception because it's so
Speaker 1: depending on who you are as a person, Like how
Speaker 1: have you navigated risk taking through your career?
Speaker 2: I mean, ultimately, you know, try and get as much
Speaker 2: information as you can, try and understand as best you can.
Speaker 2: What's going on. A particular focus for me is getting
Speaker 2: the very best talent in an organization I'm leading if
Speaker 2: you have really good people that know and understand what
Speaker 2: they're doing, and then ultimately it becomes a calculated risk.
Speaker 2: And I think also again, if I just go back
Speaker 2: to the mansion house compacts as an example, let's be clear,
Speaker 2: we're talking about five percent of customer's pension investments. Ninety
Speaker 2: five percent will still be invested the way it's been
Speaker 2: invested before, and that five percent needs to be invested
Speaker 2: in a very broad range of investments across multiple sectors,
Speaker 2: multiple investments, multiple vintages. So then you've got a calculated
Speaker 2: risk in a sensible way. And get to know in
Speaker 2: the UK we've got nine percent investing in these types
Speaker 2: of assets. Overall, it's twenty three percent, you know, So
Speaker 2: we're only talking about five percent of DC pensions. It's
Speaker 2: a small move of the nine percent towards the twenty
Speaker 2: three percent. That's the sort of thing I think. Do
Speaker 2: things in a sensible, measured, careful way, knowing and understanding
Speaker 2: what you're doing, then you can go on from there.
Speaker 1: Andy, thank you so much for your time today.
Speaker 2: Pleasure. Thank you.
Speaker 1: Thanks for listening to this week's in the City. We'll
Speaker 1: be back next week, but in the meantime, if you
Speaker 1: like our show, please please head on Overtaple Podcasts or
Speaker 1: wherever you listen to podcasts, rate, review, and subscribe. This
Speaker 1: episode was hosted by me from Sinlaqwa. It was produced
Speaker 1: by Summersati with help from Jill Namatzi. Additional editing by
Speaker 1: Blake Maples. Special thanks to Andy Briggs.