ROBERT PESTON: Hello and welcome back to asset.tv’s Masterclass with me Robert Peston. And now we’re going to turn to one of our absolutely favourite subjects here at asset.tv, which is the future of pensions. And there is a plethora of issues to discuss. One of them is whether or not we are at the end of the period of ultralow interest rates, the end of the period of that long running global bull market particularly in sovereign debt, and what that might mean for pension savings. There’s the whole reputational issue for the industry, with the focus on for example what’s been happening to the BHS scheme, and whether that is damaging for people’s propensity to save. We are still in the process of seeing what impact auto enrolment will have on long-term savings.
As I say a raft of issues to discuss. I’m delighted to be joined by a roster of experts. Simon Ellis, who’s the Global Head of Client Segment at HSBC Global Asset Management; next to Simon is Catherine Doyle who’s the Head of Defined Contribution at Newton; Andy Dickson, Andrew Dickson, Investment Director at UK Institutional Businesses at Standard Life Investments; and Gregg McClymont who’s the Head of Retired Savings at Aberdeen Asset Management.
If I could kick off really with this big macro issue. There’s a lot of talk, particularly with the election of Trump, that we are beginning to get back to an age where governments are going to be using fiscal policy more to generate growth, and this will lead central banks to perhaps begin to think about putting up interest rates and ending perhaps QE. And more importantly we’ve seen some signs of this in the bond market that this is the end of the period of ever rising prices of bonds and ever falling yields. I suppose two questions really, one is do you think we are at a really important turning point in terms of the bond market, is it end of the bond market? And if it is what are the implications for the pensions industry? And if I could ask you Simon, just to kick off.
SIMON ELLIS: Thanks Robert. Well I’m no economist I’ll start there. I think yes we’re seeing a correction in the bond markets in the short term. Does that mean that the global economy has suddenly changed and we go into a high growth high inflationary environment with a massive change in bond yield expectations? I think that’s probably optimistic. So the story that we’re looking at lower for longer, lower forever, I suspect we’re still lower for longer for quite a long period of time.
ROBERT PESTON: So that view is still intact in your view.
SIMON ELLIS: Yes, I’d say that would be our view.
ROBERT PESTON: And therefore just to be clear, given that some of these just in the defined benefit space, and indeed in the long term life insurance space, these very low interest rates have caused major headaches particularly for funders. Those headaches aren’t going to go away.
SIMON ELLIS: No, and I think if we think about the real challenge of long-term liabilities for defined benefit pension funds. DCM I’m sure we’ll cover later. The real pressure of mark to market is not going to go away through a short increase in yields. We’ve got some very fundamental issues caused by FRS17, this whole mark to market issue etc. etc. So whilst it might give some sort of a temporary perhaps emotional respite, I still think the challenges of long-term funding are absolutely still in place.
ROBERT PESTON: Now, you’re in the DC space, how has the election of Trump changed your views for example on asset allocation? I mean would you be of the view for example that we have seen in a correction bonds, does that mean weightings in bonds should go down do you think?
CATHERINE DOYLE: I think you have to think long term in pensions. There will always be market events and market vicissitudes. I think the interest in the bond market is actually more linked to the pension freedoms. The fact that you no longer actually have to buy an annuity at the point of retirement means that you can have a much broader allocation within your bond portfolio, so you can actually adopt a more unconstrained approach, a more outcome oriented approach – so actually when events do occur, like obviously the recent Trump result, you can tweak your portfolio and you can have that flexibility to ensure that you’re positioned appropriately for the risks that are out there.
And I think more broadly there’s a lot of talk about have we come to the end of a bond bull market? Well I think the other thing I would say in DC is it’s really important to have a diversified portfolio and harness all the different sources of return. So areas like infrastructure, like renewables within the alternative space that have bond-like returns with higher yields and that are actually quite economically insensitive. And these are things that can really create a well-balanced and well-diversified portfolio, which is I think what DC investors should be thinking about.
ROBERT PESTON: Andy?
ANDREW DICKSON: Again, talking about both these markets, DB and DC, we’re seeing our clients over the course of the last 18 months adopting a similar approach in terms of diversification. So if you’re a DB investor looking at unconstrained bond portfolios, hedging out duration risk, putting in place liability-driven investment strategies to really the key thing being managing risk. And as Catherine said in the DC market with the advent of pension freedoms, then it really does put up for question why one would de-risk into a bond portfolio if one isn’t going to buy an annuity. So I think action has already been taken to avoid any significant risk by having overexposure to a single class of bond.
ROBERT PESTON: Interesting. Gregg?
GREGG MCCLYMONT: Yes, I mean I think the market certainly appears to be taking the view that the great rotation out of bonds is on the way. I think the larger question is what the relationship between that change in attitude around bonds and future expected returns from equities looks like. Because there seems to be a view in the market that the one begets the other, the rotation out of bonds is related to reflation of the US economy in the first instance via Trump, and that has very good potential growth for equities in particular areas. I think there’s a question mark there. I mean there’s been a lot of research around the view around take stagnation, are we in a global sense for fundamental structural reasons around the lack of demand, whether that’s through demographics or other factors. Actually there being fundamental demand weaknesses, which mean the global economy isn’t going to grow at the same rate that it has in the past. And if that’s the case then I think the outlook for equities is probably not as sunny as seems to have been priced in by the markets.
ROBERT PESTON: And we also can’t be certain that even if Trump presses ahead with big infrastructure building projects, or says he’s going to do it as it were, and cutting taxes that Congress will actually let him do it. Because obviously as many people have pointed out the implications for US borrowing are very significant, and there’s a big constituency in the Republican Party that thinks higher borrowing is a bad thing. So there are plainly big uncertainties around all of that.
We’ll probably come back to the macro issues in a bit, but if we just bring matters slightly closer to home, obviously under the government of Osborne and Cameron big reforms to the pensions market. One element of that reform was recently reversed in the sense that the market for annuities that was promised is not now going to happen. How damaging do you think for confidence of savers is it when governments say they’re going to do something, like we’re going to let people sell their annuities and then turn around a few months later and say we’re not going to do that?
SIMON ELLIS: I think there’s so much confusion for customers, individuals in the marketplace around what are pensions all about. And clearly anything that reinforces a negative perception of locking up my money for ages and ages for a pension. So if you combine secondary annuities, changes in legislation that seem to happen every year, every budget cycle, add on top of that the crisis of BHS, Tata, etc. etc. you end up with this heavily tainted brand of pensions which is something, do I really want to get involved unless I’m forced to, auto-enrolment, versus consumption and/or some other form of savings that might be more accessible and have a better image, so ISAs being a classic example.
ROBERT PESTON: So I think what you’re saying is a time of stability would probably be a good thing. Does anybody else want to pick up on that?
ANDREW DICKSON: I remember seeing a presentation by a pension lawyer firm that identified on a graph the amount of pensions legislation there has been since the ‘80s. And it exponentially goes from the left axis to the front on a linear axis.
ROBERT PESTON: There’s been an astonishing amount of change.
ANDREW DICKSON: Yes, so regulatory stability I think would be in the interests of consumers ultimately, and also for providers of services and products.
ROBERT PESTON: And how damaging has it been that whenever in recent years governments have needed money, they’ve regarded tax breaks on pensions as being a very easy way of raising that money?
GREGG MCCLYMONT: I think it’s damaged confidence of course. From a politicians Robert, looking at the decile distribution of tax relief, it appears very skewed, and therefore it’s a natural place in an environment where money is not easy to come by for governments to look to. But taking into account the longer term consequences is critical. What I would say around the question about stability, of course stability would be wonderful wouldn’t it, we’d all welcome that, but I think it’s important to recognise pension freedoms was a revolutionary move by government. And I use that word advisedly. Good in parts, I think we have to see how it plays out in the long term. It’s incumbent upon us in the retirement space to help get it right alongside government. But revolutions tend to have consequences, and I think those consequences are still playing out. And that means stability is hard to come by.
ROBERT PESTON: Let’s come back to the pension freedoms in a minute, because I think they are absolutely. Can I just ask one though question on one of the tax raising measures, you know, the ceiling on how much you can save in a pot has been coming down and down and down. Do you think that any government would be ill-advised to lower that ceiling anymore from where we are now?
SIMON ELLIS: I suspect it’s very difficult to make a political case for not lowering it frankly.
ROBERT PESTON: Really?
SIMON ELLIS: Yes, on the simple grounds that from a mass populous point of view having people not being able to save more than a million pounds seems like that’s such a dream number to get anywhere near, why would you not? So this sort of tinkering with tax reliefs in the background and the different models impacts on people in highly paid roles, financial services etc. etc. But for the mass population it’s just another set of changes. Sorry Catherine.
CATHERINE DOYLE: I think it’s been interesting what’s been happening on the political front. Because obviously the ISA limit has been raised on the other hand, so you’ve had these kind of conflicting forces, and I think it goes…
ROBERT PESTON: And do you all think of yourselves now as also in the ISA space as well as the pension space? I remember talking to George Osborne about all of this when he was still Chancellor, and he broadly said well it’s part of the same pot isn’t it?
CATHERINE DOYLE: Well it’s interesting, actually, because if you speak to younger people, the millennials as they’re called, they will tell you that they don’t necessarily make the distinction between pensions and savings. And as we’ve said earlier pensions is somewhat of a tarnished brand. And I think that’s probably what’s been behind some of these considerations. Perhaps the government during Osborne’s tenure wanted to even push that further.
ROBERT PESTON: Well he had a plan to basically change tax relief for when you took the money out rather than when you were putting it in. And he saw the growth of ISAs as a step along the way to that.
GREGG MCCLYMONT: I think the challenge with that, I always thought you could see the coherence of it I think. But my sense was that the government wasn’t clear about where employers fitted in. It seemed to be moving towards a direct relationship between government via incentives and individuals. And the bedrock of a pension system are employers.
ANDREW DICKSON: Yes, and what I was going to mention just earlier is if you look at the overall objective presumably for any government is to ensure people do make some provision for their future income needs when they have to retire. They’re too old to continue to be working. And the whole purpose of tax relief is to act as an incentive. If you have too much complexity around that then you’ll lose the initial purpose of that, so some form of simplification. I’ve been in this industry long enough to remember pension simplification, and perhaps we could do with another version of that.
GREGG MCCLYMONT: It’s easy for us to talk about tax relief, but tax relief sounds quite complicated to most people. An approach which looked about for every two you save the government gives you one is understandable in a way that tax relief isn’t. So to that extent I’ve sympathy with the Osborne view of recognising that I think employers are critical, taking employers along with the government in any changes is key.
ROBERT PESTON: It’s absolutely, Catherine I think you wanted to come in.
CATHERINE DOYLE: Yes, I mean I think if you tinker around the edges too much then there’s a certain amount of scepticism when changes occur that there’ll be further changes down the line. So how do we move to say an ISA-type system? I think there might have been some scepticism as to whether perhaps further taxation would occur later on. And I also think we have to be cognisant that people, certainly the trend has been for people to focus on immediacy and spending now, and getting more and more indebted today. So the good thing in a way about pensions is that you can’t touch them. And that it’s a sort of discipline and it enables you to have a really long-term approach in the type of investments that you make. I mean maybe they just need to be somewhat rebranded if you like in people’s minds, so that we don’t have these negative connotations of lack of trust etc.
SIMON ELLIS: I’m going to argue with you there Catherine, because I’m not sure that the fact they’re locked up is an attractive feature. If anything I think I would applaud the progressive approach of the government around long-term savings. If we put pensions in the context of every other asset that people put together for their long-term future, and the idea that you would defer this specifically for retirement income, it doesn’t reflect the way in which people now run their lives. So I think they’re actually quite farsighted. The withdrawal on secondary annuities I think was down to this pure practicalities of making that market work effectively without consumer detriment. So it was sort of want to do this but it’s just too hard.
ROBERT PESTON: So you would like to see more flexibility, more ability for people to be able to get some of their money rather younger as it were in emergencies?
SIMON ELLIS: Yes, certainly if we look at where the LISA fits in, which I think is a little bit too engineered but at least LISA is indicating this is another form of long term savings where we’re trying to guide you towards using that for specific reasons, whether that’s for house purchase or serious ill health or whatever else. So I sort of tally with Gregg’s earlier comments. I think what the government’s trying to do is say look we want you to save for the long term, we’re not going to prescribe what you want to use the money for, and I think that matches the reality of long-term lifestyles.
The cynic, and I think there’s some reason to be cynical at times with the first stage of freedom and choice, was actually this frees up a large amount of money from the public sector borrowing requirement. A number was banded around at £30bn in a relatively short period of time. And I think that cynical view holds some validity. But when you speak to people in Treasury they have a more farsighted view about what they think long-term savings is about. And it is this combination of ISAs, LISAs, deposit accounts, whatever else you’ve got hanging around, plus your pension fund. And if we agree that the basic state pension’s purpose is to make sure there’s no one in absolute poverty, I think the view is we’ll put that in place out of general taxation, the rest is up to you.
ANDREW DICKSON: That’s a lot, I mean that’s really interesting. That’s a long way away from the Turner Commission consensus, which all the political parties signed up to round a decade ago. Because the Turner view was you had to get to a retirement income around two thirds of your final salary. Now that might be a little high. There’s different ways to cut the numbers. That may be just a bit too generous a final provision for retirement. But moving to a system that says, and I agree that’s where the government appears to be going, which says you’ve got the state pension, £156 a week or whatever it is currently, anything else on top of that is up to you. That’s a big shift, because £156 a week isn’t a lot in anyone’s terms.
ROBERT PESTON: So can I just, because we touched on pension freedoms briefly, there was a big concern that too many people would cash in too quickly. Are those concerns proving to be exaggerated do you think?
CATHERINE DOYLE: Well they seem to be somewhat exaggerated in that it seems that people are actually being far more sensible than…
ROBERT PESTON: Being sensible and responsible.
CATHERINE DOYLE: Yes they are. I mean it seems like the latest trend is that people are taking the tax-free cash element, but leaving the rest of their pot invested. And actually if you look at the pattern of the withdrawals it’s been mainly the smaller sized pots that have been taken as cash, which is an entirely rational thing to do. So you actually haven’t seen this whole, there was a fear of the Lamborghini-type behaviour, apart from the fact that most the pots wouldn’t have got anywhere near.
ROBERT PESTON: But do you think it’s encouraging younger people to save, the idea that they’ll get more flexibility? Is there any evidence, because that was the other aspect of all of this is that we wanted to see this is a spur to more savings. You mentioned the millennials but just in general among younger people?
ANDREW DICKSON: I’m not convinced that that has worked for the target market that we want for younger generations to save for their future. If you look at the demographics of the people that can access under pension freedoms, their pension savings, by de facto must be over the age of 55. And many of those individuals will have defined benefit provision that they’ve built up at some point in their career. And therefore I don’t really think it’s giving us a true insight into what consumers’ behaviour will be for those individuals that are dependent upon that DC savings pot.
ROBERT PESTON: And can I just ask related to all of this. We’ve got now a younger generation with insecure work, moving from job to job often on very short-term contracts. Is the pension industry adjusting enough to, these patterns of sporadic work?
GREGG MCCLYMONT: Self-employment is one of the big challenges. Obviously self-employed aren’t included in…
ROBERT PESTON: In auto-enrolment.
GREGG MCCLYMONT: In auto-enrolment. There’s ideas around ways in which it could be included. Payroll is the big challenge. There’s literally not a payroll to apply auto-enrolment to. And see more broadly a generation ago self-employment was something that was connected to affluence, i.e. the self-employed were generally affluent. Self-employment now as employment patterns change, the average self-employed person is on a much lower income, maybe even below the average income. So that presents a big challenge. More widely we know what’s going on in terms of the distributional consequences of government policy. If you own assets quantitative easing drives the value of those assets up. If you don’t own assets you’re in a very difficult situation. And that makes it tough to save in any vehicle.
ROBERT PESTON: Yes sure.
SIMON ELLIS: I suspect in this thing we now call the gig economy that the LISA was seen by government as perhaps the answer to these young people with sporadic employment. I’m not convinced it’s necessarily the right answer but it’s their proposal.
ROBERT PESTON: We’re edging towards something.
SIMON ELLIS: Yes, I think the challenge at the moment is to make sure that for us in the industry is to make auto-enrolment work, and to find solutions to the freedom and choice piece when people come into whatever they describe as retirement. So we’ve got some key issues with the existing agenda to solve. In a perfect world, we’d be able to cope with the self-employed, but at the moment the savings vehicle isn’t clear, the incentives for the industry to get really involved aren’t that clear. You’re trying to get people to save £100 a month; it’s a tough place to play. So I’d say we need to get auto-enrolment, proper DC working, and then address LISAs with the government to see if that’s going to work in a self-employed gig economy space.
CATHERINE DOYLE: I think even down to the basic aggregation, or actually seeing what you’ve got in these different pension pots. Clearly the pensions dashboard when that comes into being, I think it’s 2019 or thereabouts that it’s supposed to be up and running, will be a good step forward. Because it seems to me a lot of the energy is also spent on even just identifying where different pension pots are, never mind giving sound advice, just the real basics of getting the data and the information. So I think we have got quite a few challenges to solve.
ROBERT PESTON: Now, believe it or not, and I don’t know if this is an inside job, one of the questions has come from a colleague of yours from HSBC, a woman called Alison. And she’s asking do you believe that it’s better to adopt a collective approach to pensions like master trusts to help access experts and ensure a better outcome at retirement? Who’d like to pick that up?
GREGG MCCLYMONT: An interesting question. I think you have to distinguish between a collective investment approach and a collective approach to the administration.
ROBERT PESTON: Right.
GREGG MCCLYMONT: Master trusts are the latter. The growth of the master trust space in auto-enrolment has been a very striking development that gets lots of coverage. Clearly economies of scale and pension scheme administration, have great benefits. There’s arguments I think we’ve all heard made, speculation about is that a route which the broader defined contribution industry will go down?
ROBERT PESTON: And just to be clear, you’re making a distinction here between economies of scale for the provider and the benefits there may be for the saver – because I mean she’s here talking about help access experts and ensure a better outcome, but actually you’re saying that master trusts don’t deliver that. What they deliver is cost savings for the provider.
GREGG MCCLYMONT: Master trusts are multi-employer schemes. Investment of individual DC pots in a master trust is no different fundamentally to anywhere else. There’s a broader argument of whether the collective investment of equals which takes us down a different road.
ANDREW DICKSON: I’m not sure I completely agree with that, because we were touching on it earlier about LISAs and individual saving approaches, particularly for the gig employee economy. What collective if you want to try and help define what we mean by that in the context of this discussion would be where you have large aggregation of savers’ assets. That could be administered under the structure of a master trust. And then what you have there is operational scale that you can leverage, and indeed when you’re constructing investment strategies you can adopt a more institutional approach, you can invest larger ticket size, you can leverage that in terms of where you’re actually deploying capital etc. So that should transcend to a better outcome for a DC saver.
ROBERT PESTON: So you’re broadly fans.
SIMON ELLIS: I’ll let Catherine go and then I’ll…
CATHERINE DOYLE: I’d make a couple of points about master trusts. I think one interesting thing is that they’re obviously, whilst there are some master trusts that have been around for a very long time, there are also quite a lot of newcomers to this market. And I think that’s quite interesting in that there’s a sense that they’ve got no real legacy in a sense. So they’re relatively, they’re looking at things with relatively new eyes, even though obviously all the professionals will have a long history of working with trust or contract-based schemes. And many of them are also looking at the area of post-retirement and getting involved there, which of course a lot of trusts and particularly some of the trust-based schemes are perhaps a little bit more hesitant about whether they want to take on the various risks that are involved in getting involved in post-retirement.
The other thing I would say is I think it’s important, with the master trusts there is this body of professional trustees that tend to be pretty dominant. I think it’s very important that we don’t lose the members’ voice in the master trust world.
ROBERT PESTON: Oh yes, I can see that.
CATHERINE DOYLE: There needs to be that kind of link.
SIMON ELLIS: I think the challenge that really comes post freedom and choice that the industry adapted to the freedoms, in particular the unbundling of annuity as the destination. And in the adaption from the employers that I’ve met, they’re recognising that probably they could have done something perhaps bigger and better, but they’ve coped if you like. So the challenge now I think facing independent trustee boards and/or the pensions manager or the employer is sort of threefold. You’ve got questions about what’s the right form of governance for our scheme now. Is it independent trustees? All these different things going on, can we cope? Secondly costs, we can’t get away from the driver of auto-enrolment towards 75 basis points all in, which drives you perhaps towards more collectivised approaches, i.e. master trusts. And thirdly, and this is the piece where I think the industry falls down, which is actually communicating with members.
So if you say those three things, how do you provide good quality governance within a cost budget with great administration and with good member engagement and communications? I think it’s a reach for any one provider of services to do all those things themselves. We’ve seen for the last 20 years as we’ve all tried to do all three, we end up saying well we’re great at the administration or we’re great at investment, but probably that combo we’re a bit feeble at. So I suspect what’s being driven at is should we look to try and pull together various experts and say the package is we’ve got great people at communications, great plumbing if you like, the member administration, good investments. It’s more of a package. And for the member I suspect that having something that is put together as it’s all in one box.
ROBERT PESTON: And it’s best in class.
SIMON ELLIS: Best in class, and it’s relatively cheap, that’s very attractive.
GREGG MCCLYMONT: I think the challenge will come down the line. It’s understandable at this stage of auto-enrolment, which let’s not forget is still ongoing.
ROBERT PESTON: Yes exactly.
GREGG MCCLYMONT: The investment side of things, because the focus has been on payroll and administration, which I see as absolutely fair enough given where we are in the adoption of auto-enrolment. But there’ll be a greater focus as time goes on and the books mature on the investment side of things.
SIMON ELLIS: The problem is Gregg, the piece that the employee experiences is that administration. Every month they see what’s coming out of their salary. Every now and then someone tells them what it’s worth. And actually the investment decision making as we all know is deficient in terms of expecting individuals to make well informed decisions with any skill. So we have this real predominance of the default fund, which I’m not arguing is right or wrong, it’s just a feature. So the challenge is if you can’t get the plumbing right, the investment piece is all very interesting but it doesn’t really matter to the members. It’s how confident they feel that the money’s going into somewhere safe, it’s the right amount coming out of their bank account, it’s the right amount coming out of their employer, and it’s seems to be aggregating in a sensible safe place.
GREGG MCCLYMONT: I think that’s true. The stage as things go forward of course in the end the fundamental is they have enough money to live decently in retirement.
SIMON ELLIS: Absolutely, we move to outcomes then. It’s our job to get the outcome right, but the employee experience is that.
ANDREW DICKSON: Perhaps the last word in this particular topic, but I’m not, sorry I can’t agree with that. I think the investment outcome on an ongoing basis does indeed matter to the consumer. Our clients certainly tell us that an investment strategy that delivers good value for money, and it’s not just about cost. It’s also about the characteristic of that investment return. So if markets within that board they all go red, then ordinary consumers do not want to see a significant drop in the value of their savings on a year-on-year basis. And that you can lose that engagement, people will disenfranchise themselves from the system. So I think it’s important that we do focus on delivering good outcomes on an ongoing basis to the consumer.
ROBERT PESTON: Now we have got a few questions in which I’d quite like to get through, because we haven’t got a huge of time. Robin from the Prudential says the biggest issue for pension providers is the lack of engagement from the public, they’re just not interested, how does the industry and government continue the progress they’ve made in, well if you think there’s been progress as it were, basically how do you engage people much more in the importance of saving?
CATHERINE DOYLE: Well I think I’d make a couple of points there. I think obviously education is really important, and we are making strides by actually embedding some kind of financial-type education in our school curriculum. But I also think you have to speak to people in a language that kind of resonates with them. So particularly using Thintech, so various apps that actually, people can actually relate to. They don’t feel like it’s some spreadsheet or pie chart on a page that they can’t understand. I think the other really interesting area is through environmental social and governance issues, which is something that some people are a bit sceptical about, but if there’s one thing that people do feel quite passionately about…
ROBERT PESTON: So you think if people felt their money was going to the sort of, not so much causes but was sort of helping the world rather than damaging the world, that would help would it?
CATHERINE DOYLE: Well I mean certainly people do learn about things like climate change now as part of the school curriculum. A lot of people feel very passionately about that. And I’m not saying that we’re going to see a vast uptake in SRI ethical-type funds within the default, but what I am saying is that people will begin to appreciate when responsible investing considerations are embedded in an investment solution. And that will actually be almost a hook to enable people to kind of relate to what’s in their portfolio and their pensions. It might be a catalyst, like an event, like maybe an oil spillage or some kind of natural disaster that makes people think hang on, am I exposed to that?
ANDREW DICKSON: So we’ve done some consumer research on that very topic, and the majority of individuals when asked would prefer that when their money is put into the markets that it’s not just solely focused on generating an investment return, there’s also consideration around what impact that investment could have on a range of factors including climate change etc. Where I do believe that we’ll see more of a shift of focus on that very topic will be when we have greater diversification within the trustee boards that are making these investment decisions. So when you have representation from all areas of society that are actually giving their input representing their cohort if you like.
GREGG MCCLYMONT: Challenges, how low engagement is, so these things can help. And certainly digitisation and digitalisation, which are not quite the same thing, can reduce the frictions between people and their money. But I think we have to be honest and the man from the Pru’s question.
ROBERT PESTON: What’s the difference between digitisation and digitalisation?
GREGG MCCLYMONT: Digitisation is basically taking documents which are paper based and digitising them. Digitalisation is much more sophisticated around the way in which money moves around.
ROBERT PESTON: OK, it’s about…
GREGG MCCLYMONT: The man from the Pru of course with his finger on the pulse, engagement is very low. So I think what has happened in most systems around the world is a recognition that given where we are as where we are, and most people aren’t engaged, then getting the default right is very important. The architecture of the system needs to reflect that, and at the same time try and build up engagement in the meantime.
SIMON ELLIS: Just make a quick observation.
ROBERT PESTON: We’re almost out of time, so I wanted a final question all of you, but yeah.
SIMON ELLIS: So very quickly, we’ve had ESG for 30 years and it hasn’t changed engagement.
ROBERT PESTON: We had sorry what?
SIMON ELLIS: We’ve had ESG for 30 years and it hasn’t changed engagement. I think it’s very valid, we’re just offering this option with our own pension scheme, which was in The FT yesterday. We’re talking about communication. The challenge we have is we’re used to communicating with other professionals. We talk in our language; we don’t talk in the consumer’s language. The challenge for us is to find a new way of talking with consumers rather than to them.
ROBERT PESTON: Yes, probably shouldn’t say ESG either because I think most consumers haven’t the faintest idea of what it is.
SIMON ELLIS: Exactly, well sometimes I have to check it out myself to see what the S stands for. So I think we just, this is back to the point about you have to use people who are used to talking to people, ordinary people rather than talking to professionals.
ROBERT PESTON: It’s all about language that people use every day.
SIMON ELLIS: It’s language.
ROBERT PESTON: And it’s not about talking down to them by the way as we know.
CATHERINE DOYLE: It’s about framing it.
ROBERT PESTON: It’s about an intelligent conversation in everyday language.
SIMON ELLIS: Well the lesson that Brexit and Trump is they actually talk to each other. So it’s the Twittersphere that’s causing all the noise, and we’re on the outside throwing messages in hoping they’ll…
ROBERT PESTON: Now I’m going to ask you a very quick final question, because we have got to wrap up. And I’m also going to include in case any of you want to answer this in your final answer Peter Duffy from the IFS Group’s question. He just wants to know whether you think the combination of a lifetime allowance and an annual allowance is confusing and an overkill? But I just want to, and you might want to address that in your final answer but I’m just going to ask you very simply we’ve got a new Prime Minister, obviously she’s got quite a lot of things on her plate at the moment, but if there was one single simple thing for your industry that you’d like to see this new government deliver, what would it be? And I’ll start with you Simon if you don’t mind.
SIMON ELLIS: The simple thing would be stop changing.
ROBERT PESTON: Right.
CATHERINE DOYLE: Yes, I think I would reiterate that. A period of stability, and also a focus on what we’ve been talking about, actually engaging, thinking of ways to engage the consumer ultimately, and make that passage from pre to post-retirement which is as we’ve said has been a huge seismic change, make that as smooth as possible, and ensure that it’s a positive experience.
ROBERT PESTON: Yes.
ANDREW DICKSON: Two words: regulatory stability. Stop changing.
ROBERT PESTON: Yes. Gregg?
GREGG MCCLYMONT: Make auto-enrolment something that everyone is…
ROBERT PESTON: Say again.
GREGG MCCLYMONT: Make auto-enrolment, the workplace pension system, available to everyone, therefore removing the barriers and the low paid auto-enrolling.
ROBERT PESTON: Oh really, so just basically make sure it’s…
GREGG MCCLYMONT: Make it a mass system.
ROBERT PESTON: Make it a mass system, fantastic. That will be an interesting logistical challenge for government and indeed industry. Well I thought that was an absolutely gripping conversation. Thank you so much to my brilliant panel. And I think you maybe all in luck actually because what they’ve all asked for on the whole want less meddling from the Prime Minister. And I have to say as somebody who spends quite a lot of time engaging with government they’ve got their hands so full with Brexit I think your wish is going to be granted. I think pensions has gone rather down the agenda for the government. Anyway great to be with you and see you all again soon. Thank you.