Phil Loney, the chief executive of high-riding financial mutual Royal London, has become something of a combative outrider for the pensions industry in recent years as it has weathered continual change. Pensions tax relief has been subject to six cuts in the past seven years, auto-enrolment has become an established part of the superannuation landscape, and pension shortfalls and tinkering is constantly in the public discourse.
“To be honest, it [his higher profile] came about as we thought on what is Royal London here to do,” he says. “We are the last mutual in town in our sector and we partly measure the success of the business by the impact we have on social policies. And there is no bigger problem than pensions. The average retired family in the UK spends £20,000 a year. That shows the need.
“The old deal was that it came from the state and a direct benefit pension scheme from your employer. With the millennial generation, the state will provide about £8,000 a year and the rest is us down to you [in largely lower-paying direct contribution schemes]. We cannot stay silent on the policy agenda, therefore. The only way pensions will work is if the state and private sector work together. There is so much denial [of the scale of the issue] around.”
Loney, who joined Royal Mutual in 2011, cites auto-enrolment, where current joint employee/employer contributions have just gone up to 5 per cent and will rise to 8 per cent in 2019. He says it was an industry given that this joint contribution level needs to reach about 14 per cent to ensure a comfortable financial retirement. And he says an obvious way of edging up incrementally to that level is for employees to contribute, say 0.5 per cent, of each successive pay rise to their pension scheme. “That way increases will be less noticeable and manageable for people,” he says.
Returning to his high profile in the sector, Loney adds: “If you are really serious about playing a major role in solving the pensions ticking timebomb you must be prominent in areas of policy education.”
Such political engagement as now fits Loney like a glove often takes the spotlight off what has become something of a Groundhog Day of good financial results at Royal London, which employs 1,100 in Edinburgh and 100 in Glasgow. In March this year the organisation unveiled a further 17 per cent rise in annual operating profits to £329 million, with new life and pensions business jumping 38 per cent to £12 billion in 2017, up from £8.7bn in the previous year.
However, Loney used the occasion to call on the government for a five-year freeze on changes to pension tax relief after the half-dozen reductions in recent years. Was he confident he had government’s ear on the question? “Hope springs eternal,” he says. “We will have to take one year at a time. But the single biggest negative we get [from potential pension customers] is ‘you cannot trust the politicians, they will mess with it’. Gordon Brown’s tax raid on pensions [soon after Tony Blair’s New Labour won power in 1997] is still folklore, even for people who were not old enough to vote at the time. People retiring today have been saving under the old deal, but there are still large numbers who have little more than the basic state pension to rely on.”
Loney doesn’t buy the argument that people at both ends of the demographic spectrum tend to be irresponsible on pension provision because it is not here and not now for the younger ones and there are alternative uses for the money for older people. He says there was never much credible evidence that senior citizens were blowing their pension nest eggs on last-hurrah frivolity amid all the new pension freedoms. “I don’t think Ferrari sales have benefited,” he adds dryly. “Generally speaking, they have been very responsible.”
And the millennials? Loney believes they are not only generally individually responsible but also in the wider context of society. He says millennials had nothing against financial businesses making a profit but they wanted to know those businesses were also making a positive impact on society. “That doesn’t hurt Royal London. We are a responsible investor, and have brought excessive pay, poor corporate governance and environmental issues up with companies [we invest in],” he says. The most recent of these lightning rod issues was Royal London voting last week against the remuneration policy of Metro Bank and the re-election of its chairman Verno Hill because of payments made to an architectural business, InterArch, owned by his wife.
Back to the silver-haired lobby, Loney says what might be more dangerous than irresponsibility in the new emancipated pensions culture is a natural conservatism that relies too much on the comfort of cash in volatile times. He says: “We have seen some people take some of their pension pot and put it in a bank account, on the basis that they say they don’t understand pensions but they do understand their bank account. But many accounts are paying barely 0.5 per cent and inflation is running at over 2 per cent. Your money is going to erode in real terms.
“The same is true of cash ISAs, they will earn you less, when there is comparatively so little in stocks and shares ISAs. You could move your money into less risky funds. As the saying goes, inflation is the thief who steals in the night.”
Royal London is mutual to its bootstraps, but the chief executive (who previously ran the life, pensions and investments businesses at Lloyds Banking Group/Scottish Widows) is relaxed about what seems a new flurry of consolidation in the sector. That is most recently symbolised by the merger of Edinburgh-based Standard Life and Aberdeen Asset Management to form Standard Life Aberdeen, a fund management giant, which in turn spun off its insurance arm to Phoenix Group.
Loney says: “Consolidation is a long-term trend. It comes in waves and this is the latest wave. [Asset management] is an industry where too much capital is chasing too few customers. That can have benefits for customers.”
He says he has more generalised concerns, though, where financial industry consolidation can lead to “providers owning advisers, which can be a massive conflict of interest”.
Fund management at Royal London has been a significant success story under Loney’s stewardship of the parent group. In its most recent financial year the asset management arm (RLAM) drove funds under management up 14 per cent to £114bn. This is double the £50bn under management when he joined. He also takes pride that in its main markets the mutual is now “the second or third biggest player, up from the sixth or seventh largest in 2011”.
Loney declines to set further targets for funds under management, suggesting that the axiom of markets going up and down would render it just a hostage to fortune. However, what clearly pleases him is that nearly a third of the money RLAM manages now is for external clients rather than the company’s own policyholders’ money, a sort of external business badge of approval.
On Royal’s success, Loney points to a culture where the mutual is run for the benefits of its members and financial performance is only one part of a more holistic approach. He says in terms of key performance indicators, only 40 per cent of his remuneration is based on that financial performance, the rest being in areas such as benefiting its members, corporate governance etc. But he does accept that the aftermath of the financial crisis, when a number of shareholder-owned banks had a torrid time of losses and mis-selling controversies, has helped the mutual sector. “We and Nationwide are the biggest financial mutuals and we benefit from funding ourselves,” he adds. “Tangible performance is important as well. Nobody is going to be interested if we just say we are a warm, cuddly mutual.”
Even so, although Loney doesn’t introduce the subject, he is known among senior industry professionals for being a committed Christian who regularly gives a not inconsiderable portion of his overall remuneration to charity. With a strong hint at that hinterland, he says: “We call it a tithe. It is my personal faith. I was an atheist until my late twenties. But I read the Bible for myself and I was impressed by the lifestyles of people who felt similarly.”