Charlie Conchie interviews the biggest movers and shakers in tech, fintech and financial services. This week he talks about the importance of pensions and language with Standard Life boss, Andy Curran.
When Andy Curran moved from Glasgow to Reading in 1989 for his first job in the pensions industry, he came up against a cultural barrier.
“I struggled with the language – and it wasn’t because of my accent,” the boss of pension giant Standard Life laughs. “It was because the words we were using in the industry at the time were not words I’d really heard of before.”
Fast forward 34 years, and he’s still grappling with the same issue. For all the pension policy dominating both parties’ overtures towards the City, Curran says the industry has forgotten to explain itself to the everyman.
As a result, millions of savers across the UK could now be facing a retirement with far less cash than they expect. That, he seems to reasonably point out, is a problem. And central to it is the fact people just don’t really understand what their pension is.
Auto pension enrolment was one of the key policy wins of the coalition era and essentially made employees automatically pay into their pension pots. In the 10 years after its introduction in 2012, employees across the UK saved £114.6bn on their pensions, a real terms boost of £32.9bn, according to the government’s figures.
Under the current rules, eight per cent of an employee’s salary is committed, with three per cent of that made up by the employer.
But the government’s lofty numbers may shroud a slightly darker fact. Last month, Standard Life and its parent firm Phoenix, which manages around £269bn, stepped in to issue a punchy statement in pension terms: eight per cent commitment needed to become 12 per cent, or some 14m people were facing a hole in their finances when they settled down for retirement.
Alongside that, prices are rising sharply, state support is in decline, and the advice market has been decimated compared to where it was 30 years ago.
“That’s not a good cocktail”, Curran says. “It’s a really big problem.
Curran’s call for a boost in commitment to auto-enrolment made less of a splash than he expected – this was a call for a monumental shift in the industry’s flagship policy.
And there in his view lies the problem. Brits don’t like thinking about pensions. According to Standard Life’s own research, it comes at the bottom of the ‘life admin’ list for most people.
The UK population is getting older and a wave of retirees are set to quit their jobs without the buffer they thought – but “who’s explaining that to them?”, Curran asks.
“The industry has a habit of endlessly engaging in a language it understands, not in the language that the consumer understands,” he says.
In previous decades, a lot of retirement savers would be able to turn on more clued-up financial advisers, but the industry is a far smaller one than it has been and costs have risen.
Less than 10 per cent of people are receiving ongoing advice due to a shortage of advisers and a shift in focus towards more affluent clients, according to investment research firm Platforum.
“I would like FCA and other regulators and other players in the market to think about how we address this advice and guidance gap, where only 10 per cent of the UK population is getting advice,” he says.
“In conversations with the FCA, they do recognise the challenge. My sense of it now is we should be bold, because this is a problem now. And we all know it’s a puzzle. And we should think really long and hard about what is the solution over the longer run.
Despite those protests however, a different side of the industry is dominating much of the debate.
The government and the City are looking to unlock the more than a trillion pounds of pension capital stashed away in the country’s retirement pots.
After years of lobbying from the tech industry, some of the pension industry’s biggest money managers, including Standard Life’s parent firm Phoenix, signed up to the Mansion House Compact in July, committing them to channel five per cent of their assets into start-ups and venture capital.
The move has also been firmly backed by the Labour party. Rachel Reeves even floated the idea of forcing pension funds to commit five per cent to VC and private equity before they signed a formal agreement.
Those in favour of it say it puts the UK more in line with the investment approach of peers like Canada and Australia. But in a year when start-up valuations have cratered, there are concerns from some quarters over whether it can deliver the returns for savers.
“I do think it is capable of delivering on both fronts,” Curran says.
“First, it is only five per cent of your overall portfolio, and you’re investing in slightly different assets to which you’d traditionally invest in, so it gives you fuller diversification in your own pot.
“And – if you do it well – further growth. That’s a good thing.”
For Curran, however, the retirees need to be at the heart of the argument.
For initiatives like Mansion House to succeed, it is down to making it meaningful for the “the man and woman on the street”.
The issue troubling him is the fact that people are obliviously facing a black hole in their retirement pots and don’t understand the problem, let alone the solution. Whether that pension language barrier is broken down any time soon, is yet to be seen.