Tuesday 24 April 2018

Government raid on funds is 'death by 1,000 cuts'

The new levy will undoubtedly have an impact on pension sales and will profoundly affect the confidence people have in putting aside savings for retirement. By Laura Noonan

Nigel Dunne: 'The levy will undoubtedly trigger an impact on pension sales and on Standard Life's sales, though it's difficult to quantify the size of that impact.'
Nigel Dunne: 'The levy will undoubtedly trigger an impact on pension sales and on Standard Life's sales, though it's difficult to quantify the size of that impact.'

YOU can often tell a lot about how an interview is going to go from the first few minutes.

Standard Life's Irish boss Nigel Dunne is off to a strong start -- it's his first interview since ascending to the top job a year ago and he's taking it on without a PR type to hold his hand or deflect uncomfortable questions.

Dunne is lucky in that he doesn't have a terribly difficult story to tell -- Standard Life's new business is down about 28pc since boom-time 2007, but market share has almost doubled to about 10pc of the 'investment-only' world.

The firm's 250-strong workforce has been maintained by convincing 'big' Standard Life that Ireland was the perfect place to set up Standard Life International (SLI), an offshore bond business that now uses about half Dunne's manpower.

The 20-year Standard Life veteran will have to talk about more than Standard Life's smooth progress though -- the life insurer may not be one of the 'big four' in its field, but it's no stranger to controversy.

Standard Life's unceremonious dumping of Irish banks from its investment platform triggered quite the backlash when it became public knowledge in 2009.

Then there was the infamous 'Heathrow pensions' saga in 2008, when Standard Life devised a creative way to help employees get into Approved Retirement Funds (ARFs) by over-nighting their money with Standard Life UK.

While not against the letter of the law, the scheme certainly went against the spirit of prevailing legislation, and a quiet word from the chaps at Revenue led to Standard Life voluntarily withdrawing the legislation.

No-fly zone

Dunne is happy to defend Standard Life's no-fly zone around Irish banks and the Heathrow pensions situation, but it would be remiss to delve into either argument before first dealing with a far more immediate concern -- the new Government's "smash and grab" on private pensions.

Last week's jobs initiative imposed a 0.6pc levy on the accumulated assets of all pension funds -- an initiative the industry has greeted with considerable vitriol (even though the concept was actually their idea).

Dunne, somewhat melodramatically, describes the new levy as "death by 1,000 cuts" for an industry that's already been hit by reduced PRSI tax relief for pension contributions, lower pension tax-free lump sums and lower caps on the maximum size of an individual's pension fund.

The levy will "undoubtedly" trigger an impact on pension sales and on Standard Life's sales, Dunne says, though he's reluctant to quantify the size of that impact (and it would be difficult to sort it from the general recession hit on pension and savings).

Nonetheless, Dunne is emphatic that the impact will be profound. "Trust has been hugely damaged," he says, slamming the "retrospective" nature of a levy on retirement savings already set aside.

"Judging by our customer feedback, there is a significant risk that savers could move their accumulated savings offshore to avoid such uncertainty [over future levies].

"Savers are very close to the point of no return."

The industry at large is now clamouring for clarity on future pension policy since the Government is still intent on raising another €1bn a year from the life and pension space but has yet to outline how that might be done.

Dunne has a slightly different take on things. He says there "has to be no more mention of further levies or income tax relief being reduced" -- a position that's hard to square with the Government's €1bn demand.

Dunne's 'hands off our industry' demand doesn't spring from naivety about the challenges the country faces. His role also encompasses heading up Standard Life International (SLI), which sells offshore bonds to UK clients.

Customers

"I spend a fair bit of time trying to convince our customers and distributors that Ireland is not in serious distress," he says. "There's no question that our international reputation has been badly hit."

Across the water, Dunne stresses that SLI customers have zero-Irish risk since their assets are held in sterling. If anything, the economic collapse is helping SLI's business because costs in its Irish base are falling.

He must sell the story well, because Standard Life has shown no inclination to move SLI to another offshore location like the Isle of Man or Jersey, or to scale back the Dublin project.

Sales at SLI are growing at a rate of more than 90pc a year, and Dunne is contemplating expanding the international unit's reach into Asia over the next couple of years.

With SLI doing such a roaring trade, it's perhaps little surprise that Dunne seems to be looking to that division to satisfy his expansionary ambitions.

Two of the country's biggest life insurers -- New Ireland and Irish Life -- are both effectively on the block after their bank owners ran aground. Asked about his interest in the duo, Dunne says he would "always look, but not seriously at this point".

Dunne does see opportunities from the sales, though. "Any uncertainty in financial services makes people uncomfortable," he says.

"While the ownership of those two organisations is still very much in doubt, we'll look like a much more attractive home [for people's pensions and savings]".

Indeed, Standard Life has already been benefiting from the Irish banks' fall from grace. Dunne says some of his company's recent growth in market share stems from a shift away from the once-dominant bancassurers in favour of intermediaries.

Standard Life has also enjoyed some benefits from the deposit flight out of Irish banks, as fearful depositors opted for the safety of Standard Life A+ rating and its unique status as a UK branch covered by the UK guarantee scheme.

"It's hard to put your finger on the one thing that's driving it [Standard Life's growth]," says Dunne. "We've also got a very compelling investment offering and a very robust administration platform."

He insists the company will continue to invest in Ireland despite the challenging environment -- some €10m has been invested in the administration platform over the past 18 months, a "significant" investment in "digital capability and brand awareness" is next on the to-do list and a new website will be launched in August.

It might sound very patriotic for the Irishman to have convinced his UK maestros to go along with the investment, but Standard Life hasn't always been seen as so 'Ireland friendly'.

Dunne admits that "some customers reacted negatively" when his company removed Anglo Irish Bank from its deposit platform in late 2009 and went on to eliminate the other rapidly weakening Irish banks.

He's unapologetic about the decision -- when the banks' ratings slipped below Standard Life's minimum criteria, they had to be taken off to protect policyholders. Was the government guarantee not good enough for him then?

"Just because we've taken people off the panel doesn't mean we don't trust them as an organisation, it just means we're less comfortable with them than we are with other institutions," he answers diplomatically.

He is similarly careful with his words when it comes to the Heathrow pensions saga.

He says the arrangement was a "way for our customers to benefit from pensions legislation as it stood" [which allowed for funds from the UK to be transferred into ARFs].

And the Revenue's intervention? "They didn't tell us to stop, but we had conversations with them and they didn't tell us we should be promoting it either," he says deftly.

It might be his first interview, but he certainly has something of the pro about him.

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