Finance chief takes long-term view on Irish pensions reform
In person: David Harney, Chief Executive, Irish Life
The Irish Life offices on Dublin's Abbey Street are a reminder of another age. At the top of the heart of the complex I'm whisked through wide corridors, huge double doors and a collection of sculptures and paintings that are straight out of the 1980s. Irish Life chief executive David Harney's corner office could comfortably accommodate a game of five-a-side soccer with plenty of space left for us to have our conversation.
The balcony wraps around two sides of the room with views over the offices of the docklands and the Wicklow mountains beyond. There are lots of cranes. Irish Life has long been among the biggest investors in the offices those cranes are putting up. I joke that Harney will lose his lovely view if the march of office blocks comes much closer.
It used to be a view over Dublin Bay, he points out. His slick digs belie the low-key Roscommon man who joined the company as a 17-year-old from school and later trained as an actuary. He's personable, and business-like - and surprisingly young for a man who started work here more than 30 years ago.
If the offices recall the 1980s, its impossible in the week that's in it not to be thrust back mentally to the run-up to the bank bailout in 2008 - when the then Irish Life & Permanent - and the entire banking structure hung in the balance.
Then IL&P group chief executive Denis Casey was subsequently jailed for his part in a €7.2bn conspiracy to defraud, that had dragged IL&P into the Anglo Irish Bank debacle.
I suggest the atmosphere must have been febrile in here at the time? "When you are in it you are just caught up in it. It is intense - but day-to-day you don't feel that intensity, we still had to do our job, we still had all our clients to serve and people to look after. The day job didn't change - you have to come in, manage your teams, manage the work," said Harney.
The events as they unfolded were momentous. Government nationalised the group in order to recapitalise the banking arm. The bank and insurer were then split up and, in 2013, Irish Life was sold to Canadian investor Great-West Lifeco for €1.3bn. Huge dividends paid back to Canada since then would suggest the business was picked up cheap, I suggest. Harney sees where I'm coming from - but the deal was only good for Great Life in hindsight, but was good for Ireland at the time, he says. Buyers were still thin on the ground in 2013, he reminds me.
"The Government sold it for the best price it could at the time. I think it was fair, and it was hugely important for the country because we were starting to come out of the crises and for a government to sell a financial services company is just a very, very strong sign, strategically, for the country. Obviously the economy has performed very strongly since 2013 and Irish Life has done very well in light of that, so it's turned out that 2013 was a good time to buy the company - but, it was a very fair price at the time."
Since then, the Irish business has been part of a huge Canada-based multinational and made a major push into the health insurance sector - buying Aviva's business here and the 50pc stake it didn't own in Glo Healthcare.
Irish Life is profitable, but that kind of investment needed sign-off from Canada. They had to make a case but the parent has been supportive and is generally positive on Ireland - its German business is also run from here - Harney tells me.
Its status as an acquirer has sparked market speculation it is looking at bigger acquisitions - including in the wealth management sector. Harney hears the same rumours. "We're fully fitted out [as a business] now across those ranges. There will be acquisition opportunities and there will be consolidation opportunities, but we're not active on anything at the moment. As things come up we'll look at them and consider them," he says.
"We are in the wealth management space. We are the biggest wealth management company in Ireland - nobody is managing more wealth, we are keen to grow in that space but I feel at the moment we have everything we need."
Unlike health insurers in some other markets, he doesn't see a benefit to investing directly in the healthcare sector - buying private hospitals, for example.
"Ireland is a little bit small for that. The hospitals in Ireland will be separate from the insurance companies. Our role, obviously, is we provide the insurance at the point in time where people need to go into hospital. What insurance companies can do, we can do more to encourage people to manage their health better - I see us getting more into that space rather than building out in the medical provision."
An actuary by profession, it's the pension business that really gets Harney enthused. He's evangelical on the plans for an auto-enrolment pension scheme. In the longer term he reckons the impact on life in Ireland could be transformative.
"A little less than half of workers don't have any pension arrangement in place; but when you strip out the public sector it falls to its almost two-thirds of the private sector who don't.
"Most of those two-thirds know they should be doing something about it but they have other pressures and its just an easy thing to put off, so auto-enrolment is very important. Other countries have found that once it's introduced most people have gone along.
"It is absolutely the way to do it," he says.
The Government has a proposal for a scheme, due to begin in 2022. Harney thinks its a good plan. "It's pretty detailed - it's a very ambitious proposal as well," he says. Under the scheme Government will centralise the collection of contributions and deal with employers, and then tap a group of pension managers to build out the system. Irish Life fully expects to be one of those.
Eventually employers and workers will each contribute 6pc of salary to it, with a 2pc top-up from the State. "That's an aggregate 14pc contribution rate that's among the best in the world. They've also proposed - the goal is to be very efficient - they are talking about a maximum charge of 0.5pc per annum. If they can build that out and do that it would be the most efficient in the world," he says.
Those contribution levels mean there's pain for everyone and workers who are younger now will benefit the most, he admits. "It will take a generation, but it will transform wealth over a generation," he says. "If we think about it purely in terms of retirement - there's lots of talks about wealth inequality. Governments most of the time try and balance up wealth inequality through taxation - which is important - but one of the core problems is a lot of the population don't save. Wealth comes from savings, this will make the vast majority of people save, and over a generation, that will transform wealth distribution within the economy."
Irish Life will be bidding for a share of the business, but Harney's enthusiasm is genuine. "It's a very noble thing for everybody to try and do. It will take 35 years. I think that will change people's outlook then. If you are in a country where everybody has a reasonable level of savings that would be a very healthy place for a country to be," he says.
Right now nobody believes that the housing market makes for a healthy country. Irish Life has invested in housing off and on - there are apartments here in the complex. It recently acquired a block of 262 in Churchtown, Dublin where the pension fund will be a long-term landlord.
It's not the start of a major push into residential, but there will be more, he says. "It's a very established asset class in most countries - Ireland is catching up a little bit."
He doesn't buy the idea that institutional landlords are squeezing traditional home-buyers out of the market. "That is a pretty positive development, obviously the core of the housing problem is supply. This is something that will help. It's not going to be the sole solution or anything like it but its another helpful contributor to the supply problem."
Competition for property means the returns for landlords aren't as good as some people think, he says, particularly as interest rates are set to normalise.
For Irish Life, residential will remain a sub-asset class, behind offices, retail and industrial where it will continue to invest.
Things change, but somehow the message always comes back to continuity.