INTERVIEW: Phil Loney, CEO, Royal London
‘We are still short of affordable pensions advice’
Pensions ministers rarely get a good press, but Steve Webb won friends for the revolution that swept through the industry on his watch. Pensions freedoms and auto-enrolment have transformed the sector.
So when he lost his seat in the General Election there was some concern about who might take his place.
Those nerves were settled with the appointment of Ros Altmann, a long-time champion of the needs of the retired and someone who knows the industry better than most. As a non-elected minister she needs a seat in the Lords in order to join the Cabinet, but once that piece of paperwork is signed and the ermine suitably dispensed, she is expected to hit the ground running.
She also carries the support of the pension providers and advisers. However, Phil Loney, chief executive of Royal London, says her biggest test could be convincing her new bosses that some of their current thinking is a little wrong-headed, including an election commitment to curtail tax relief for higher rate taxpayers.
“We are hoping this will not happen as it is not a smart thing to do,” he says. “People imagine tax relief on pensions is a subsidy, but if you do not give people the relief then they are being taxed twice, and this disincentivises them to save just when they are at their peak earnings powers.
“Pensions are now outperforming ISAs. People are more willing to save for the long term,” he says. “But this [the tax relief plan] is one thing that looks like it was cooked up quickly when they needed something to fund lower inheritance tax bills. They have not thought it out.”
The plan was “cooked up”, he says, during the election campaign but nothing has been heard since.
“There has to be a high risk they will go ahead with it. We have asked for a proper review because it will be bad for the Exchequer in the long run as fewer people will save into a pension and therefore less money will be raised in tax.”
He’s also got an issue with the £1 million cap on pension pots. “It sounds like a lot, but buys a pension of only £27,000 a year. That’s hardly a life of luxury.”
Loney, 50, is a pensions veteran who cut his teeth at Clerical Medical and Scottish Widows. Since his move to Royal London four years ago he has been busy re-branding the old Scottish Life and Scottish Provident businesses that it acquired in a period of industry consolidation and building the business as a top three player in each of its sectors.
It has meant reducing the number of brands, building the business behind the 150-year-old Royal London brand and promoting both the benefits of mutuality and the scale of a company which is now Britain’s biggest mutual life and pensions business.
He lives in Bristol but is regularly on the road visiting the firm’s offices in Edinburgh, Glasgow, Bath, Reading, Dublin and Wilmslow near Manchester.
In the process of reshaping the company he has not been afraid to speak out about changes in the industry if he believes they do not benefit the customer.
In February he accused the government of “political bungling” by introducing the latest reforms to an “unrealistic timescale”, although only last week he was saying the Chancellor “deserves credit for giving long term saving a real shot in the arm”.
The two statements, while appearing contradictory, are entirely complementary. “The reforms were imaginative and a good thing. They recognised that one-size-fits-all pensions don’t suit a lot of people, particularly those with small pensions who don’t need or want an annuity.
“But they were thrown together in a hurry. We were receiving new directions on implementation just two weeks before they went live. Pension Wise [the advice service] was not ready and providers struggled to get over the line.”
He recently issued a five-point wish list for the new minister which included more focus on advice and regulation.
“Pension Wise is okay but people are not phoning. Most people are doing sensible things. They are not spending their money on Lamborghinis, but the vast majority of those customers are not looking at Pension Wise. They have people sitting around waiting for customers to call.”
Loney says initiatives like Pension Wise fall short of what is really required. They provide information and guidance, but not advice.
“Advice is missing and it is expensive. The regulator [the Financial Conduct Authority] has failed to create the conditions for cheap and cheerful advice that is available to the ordinary customer who does not have two or three thousand pounds to spend.”
It is a view shared by the new pensions minister, so Loney knows he is pushing at an open door. If only he and she can persuade the Cabinet to introduce the necessary changes.
He also wants her to raise the maximum contribution allowed in an auto-enrolment pension. It will rise to 8% over time, but he says it ought to be nearer 15%. One solution would be to include higher contributions as part of wage rises.
His reasoning for this is to build the state pension into a bigger safety net and to give the providers a bigger margin so that they can offer more competitive products.
Altmann “gets what is needed”, he says, though he believes her campaign for holders of annuities to sell them in a secondary market should only be allowed if there a robust advice mechanism in place as “there is a real risk in this going wrong”.
He says: “The FCA needs political pressure put on it and direction to make these things happen. I think Ros Altmann could be the person to do that.”