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