We need to find new ways to take pension insurance risk – and reward it.

The Phoenix Group has under its control, some £300bn of policyholder’s money spread over 13m policies. Andy Briggs, who is the Group CEO is asking the Treasury , through its regulators, the PRA and FCA to relax rules on regulatory capital so that up to £50bn of this money could be invested in productive finance (£30bn more than the Group’s existing commitment).

This is quite a challenge. When you consider that a 10% extra allocation to illiquids from all workplace master trusts, would increase flows to infrastructure, the green economy and innovative start-ups.

This begs the question, why aren’t 13m policyholders lobbying hard to make their money matter. The answer is of course that the money is locked into policies that ordinary people have little or no engagement with –  we have no alternative but to rely on the good offices of our regulators and insurers to maximise the use of our money to increase the utility to shareholders , policyholders  and wider stakeholders – including the taxpayer.

The challenge is to ask the Treasury to relax rules put in place to protect policyholders, including the trustees of the two master trusts Phoenix own (both through Standard Life).

It would seem to be a quick and easy win for Government. Not just is Andy Briggs speaking for Phoenix, Nigel Wilson is making the same noises for L&G – according to the FT

Unlike , DC occupational pensions where members take almost all the risk, in insurance, the risk is shared between the shareholder and policyholder. If for instance Briggs decides to invest the massive not for profit funds he has at his disposal in growth assets, he is dialling up risk for policyholders who hold Phoenix annuities, are in Phoenix endowments, with profits pensions , not to mention those being paid pensions through bulk annuities – effectively buying occupational pension schemes out of their liabilities.

So Mick McAteer, who will always put the consumer’s case, is quoted by the FT as criticizing the finance lobby for

“aggressively and disingenuously using climate change and national economic priorities to push for deregulation” .

I usually side with Mick and most of me does so now. Who else is going to put the case for consumers who bought many of the policies mentioned above based on Phoenix investing in zero-risk assets such as Government debt and are now finding their policies may be backed by much less secure enterprises. Relaxing the rules could give insurers the freedom to invest less conservatively , allowing future policyholders to pay less for their guaranteed products but stranding existing policyholders in riskier strategies with no commensurate benefit.

But the consumerist argument needs to be balanced by people’s very real wish to have their money managed in a way that it shapes a better  Britain and a better planet while it is in the insurer’s care. People will accept some risk – if the risk taken – is taken responsibly. And people know that when a risk is taken and is rewarded, that it’s the person whose money is at risk, who should be rewarded.

Effectively a lot of “not for profit” business could be moving into “with profits” territory and a way would need to be found to reward existing policyholders (if there money was being used).

I am quite sure, that the Treasury will be taking Briggs, Wilson and other insurance chiefs seriously. The numbers are huge and dwarf the amounts that can be gleaned from the DC savings that have so far been the focus of HMT’s call for the investment big bang.

But if risk sharing is to become a feature of pension insurance, shouldn’t we be looking beyond the internal funds of a Phoenix, Aviva, L&G or Scottish Widows. Isn’t it time we started looking at risk sharing as a feature of publicly promoted funds too? So far, the large insurers have shown little willingness to organize pensions for their workplace and non-workplace pension customers. Let’s hope that this new spirit of entrepreneurial zeal , displayed in managing internal money, is reflected in the development of sustainable pensions through innovative products such as CDC, modern tontines and the hybrid annuity strategies suggested by LCP over the weekend .

Andy Briggs – CEO of Phoenix Group

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in pensions and tagged , , , . Bookmark the permalink.

Leave a Reply