CLIVE Bannister pours cold water on fears in some quarters that tomorrow’s pensioners will “blow it all on Lamborghinis”. It was a reaction from one commentator to Chancellor George Osborne’s radical shake-up of the annuities market in the March Budget.
Bannister takes a sanguine stance, which is interesting given that he is chief executive of Phoenix Group, the UK’s biggest closed-life funds consolidator. It has six million policies and a founding remit to buy up closed-life fund pension providers.
These are essentially the failed with-profits policies of the 1970s, 1980s and 1990s, with costs stripped out, efficiencies and clarity introduced, and a high-powered telescope scanning the market for sector-consolidating acquisitions.
The market’s appetite has been whetted for a major Phoenix deal, not least by ultimately unsuccessful talks last year between Bannister and Admin Re, the closed life funds business of reinsurer Swiss Re.
While the market awaits, however, Bannister’s displacement activity is coping with grenades in the political and regulatory minefield. Of the Chancellor’s move in the Budget on annuities, he admits it has “changed the industrial landscape (for pensions providers) for good or bad”. From next spring, over-55s will be able to access their private pension pots and spend them as they like. The requirement to take out an annuity will disappear.
But the Phoenix boss says the evidence from countries where the purchase of annuities to fund retirement are far less prevalent than historically in Britain (less than 10 per cent in America and about 3 per cent in US) shows “people are very rational”. They do not just squander their long-term welfare on short-term luxuries.
He says the middle-class background he comes from – his father, Sir Roger, is the world-famous former athlete (and neurologist) who broke the four-minute mile barrier in 1954 – “took it as axiomatic you worked hard for a pension to enhance the quality of your later life”. His voice softens when he talks of his dad and his mother, Moyra. “I’m very proud of them,” he says.
Meanwhile, Bannister is confident of Phoenix’s prospects despite admitting there are clouds on the broader pension horizon. He says current data suggests 24 per cent of the UK population will not have sorted out long-term pension provision, ekeing out an old age purely on basic state provision. “And the new generation will have to work hard with defined contribution pensions [where only the amount put in is guaranteed rather than the payout]. Defined benefit [based on final salary pensions] will be viewed as strictly for the birds,” he says.
Another bombshell for the whole insurance sector was when the financial regulator blindsided everyone last March by saying it would review 30 million closed life insurance policies going back decades and potentially do away with exit fees from them. These fees are not massive – about 2 per cent in Phoenix’s case – but cumulatively the financial hit was potentially huge.
Controversially, the Financial Conduct Authority (FCA) mentioned the possibility in a newspaper interview without a formal clarifying statement. Shares in the insurance sector went into freefall, with 23 per cent wiped off Phoenix. The stock has since recovered a bit, and is now down about 12 per cent on its level before the regulatory gaffe. The Chancellor weighed in, demanding a review and explanation from the FCA as to whether a “false and disorderly market” in shares had been created, a serious embarrassment for a regulator that normally fines companies for doing just that.
Bannister is surprisingly magnanimous (or politic), saying an adversarial relationship between insurers and the FCA is not in anybody’s interest. He appears somewhat mollified that the FCA has since indicated that it is not going to retrospectively apply current standards on historic investment advice.
However, over breakfast near his office by St Paul’s Cathedral, he does permit himself a wry smile. “I accept that the storm was wholly unintended. But the FCA review demanded by Osborne did remind me of someone being back at school with the headmaster,” he says.
Warming to his subject, Bannister adds: “The problem is you destabilise investors’ view of this sector. It makes raising capital more difficult. Our job is to make sure money lasts as long as people live. You need capital via debt or equity. That’s difficult if people say there’s the prospect of unpredictable regulatory oversight. It rattles the cage.”
Despite the current lack of any major acquisition for Phoenix, the chief executive is not letting the grass grow under his feet.
In late March, the company announced the £390 million sale of its asset management arm Ignis (which employs 250 in Glasgow and 150 in London) to Standard Life Investments (SLI). It awaits regulatory approval, but frees up Phoenix to focus more intensively on closed-life funds consolidation.
Bannister says the idea is that if, as seems likely, his group picks up more asset management business as part of closed fund deals, it could also be sold to SLI as part of Phoenix’s outsourcing model in return for “between 15 and 20 per cent” of future fund mangement revenues.
In a trading statement at the beginning of May it revealed it was set to meet all its financial targets in 2014, including cash generation of £500m and £550m (excluding the Ignis proceeds), and £2.8bn between 2014 and 2019.
Bannister has said he believes there is £200bn of closed UK life funds business to go for. Despite the failure of the Swiss Re talks, he says he does not feel under any pressure to do a deal within a set timeframe as this would inevitably push up asking prices. But he pointedly refuses to rule out restarting talks.
“Our mission in life is to do deals. And I rule out absolutely nothing,” he says. “We would not have spent several months thinking about it [the Swiss Re deal] and then confirming we talked about it if it had not been a possibility.”
Bannister joined Phoenix in January 2011 from HSBC, where he held a series of top executive positions since 1994, culminating in group managing director of the banking giant’s insurance and asset management division.
Why make the move? “It was a privilege to work at HSBC, but it’s an enriching experience to run a plc. I’m also a restless human being, and ambitious.”
Insiders say Bannister enjoys a sparky, teasing relationship with his chairman, Sir Howard Davies, once chief executive and chairman of the former financial regulator, the Financial Services Authority.
“Your chairman is always your best friend until he shoots you,” Bannister says. “But seriously, Howard is high-energy, high-IQ, cares about people, and has an intuitive sense of where a regulator, on balance, will prioritise.”
And, showing that a perceived staid sector like insurance allows humour to pop its head out of “embedded values”, “free surpluses” and the like, he explains the twist after he expressed apprehension about his motorbike-riding chairman coming a cropper on one of his crosstown journeys.
Bannister subsequently came off his bicycle, breaking bones in the process. “Howard laughed like a drain, saying ‘it’s you that’s the liability, not me’.”
Born: London, 28 October 1958.
Education: An MA in politics, philosophy and economics from Exeter College, Oxford University.
First job: A waiter in Gstaad in Switzerland.
Best piece of advice given to you? “From my grandmother: ‘You have two ears and one mouth so use them in that order.’ That is, listen!
Thing you could not do without: Books.
You drive? Caterham 7 kit car.
Favourite music: Cat Stevens.
Favourite holiday destination: Walking in Switzerland (like Georg von Trapp).
Other interests? Chairman of the Museum of London. “I can bore for England on the subject of London.”
What makes you angry? Inertia.
Best thing about your job? Making money last as long as people live.