Louise Doherty: Hello and welcome to the latest episode of Thinking Forward. With myself, Louise Doherty and Mike Ambery, where we explore the trends and developments affecting the UK pension industry. Last time round we were joined by the fantastic David John and we explored all things US. We had great feedback on the episode and actually I think we might need to invite him back closer to November to see what is going on with that political race.
But for today, we've got two new episodes. We're delving into the UK political and economic trends. What this could mean for pension reform and investment. And then we're going to do a second episode, focused more on global trends.
So to help with the episode, Mike and I are lucky enough to be joined by Anthony O’Brien. Anthony is our Head of Market Strategy at Phoenix Asset Management. So Anthony, thank you for joining us.
Anthony O’Brien: Thank you very much for the invitation to come.
Louise Doherty: And perhaps just tell the listeners a bit about what you do at Phoenix Asset Management.
Anthony O’Brien: I am Head of Market Strategies, and we provide the economic backdrop to which feeds into, the Phoenix investment teams. To help formulate their investment ideas.
Michael Ambery: Fantastic. Anthony, really good to see you. I know for a time we've wanted to wrestle you, to get you behind the microphone. So it's good to have you here. And hopefully we can have you back a few times as well.
Anthony O’Brien: Absolutely.
Michael Ambery: Brilliant. I'm going to start off with a question if I may. And that's around the UK, general election, which took place, oddly enough, on the 4th of July, Independence Day, for the states and the states, is what we've talked about before. And it's obviously seen Labour, come to power and a new prime minister in Sir Keir Starmer. I wondered your thoughts, really, in what has changed economically in the UK since that election, since the new government?
Anthony O’Brien: Well, it's very difficult to really alter the, the direction of this, you know, $3 trillion super tanker, which the UK economy is. And also Chancellor Reeves really did promise to stick to, you know, the previous administration’s fiscal rules. So there's not an awful lot more, you know, fiscal boost to expect from the Labour government.
But certainly the mood music has changed. You know, all the political turmoil that we've seen in the past ten years, you know, five different, prime ministers, you know, Brexit referendum, and Labour's pledge for securonomics, whatever that might mean. But, and also their large majority should install some political stability and could change overseas investor’s perception of the UK as a, you know, a place to invest.
Michael Ambery: You read my mind because that's my next question, realistically. I like your wording there of security obviously with a parliamentary term bank ahead and a supermajority realistically. I've seen Rachel Reeves probably doing more, movement around the globe than Louise and me over the last month, as you say, I’ve seen her in Canada, seen her in the States over the last few days. Really wanted your thoughts on and what's the rest of the world's view, of the UK now and whether that has changed?
Anthony O’Brien: Well certainly the decision to leave the EU did puzzle overseas investors. I've spoken to many international asset managers and, you know, they were very, you know, strange, as I say, puzzled as to what the future direction of the UK would be. And it didn't help that we've had these five different prime ministers, you know, since that decision. So I think they were genuinely puzzled and it's been taking an awful long time to find out, you know, what Brexit actually meant.
But hopefully there’s, you know, stable political environment which we find ourselves, and a bit of, you know, a stronger economy will, you know, sort of attract foreign investors to the country. But I think that, you know, what we shouldn’t actually underestimate is the fact that we do have, you know, a decent reputation in, you know, education where our universities are some of the bests in the world. We've been a global leader in climate change. You know, our presidency of COP 2026 was seen as a, you know, an overwhelming success.
And we have played a key role in NATO. And we were, you know, one of the first to support, Ukraine with military assistance. So I think given that we've got, hopefully a bit more, stability in politics, you know, ironically, with all the uncertainty that we're seeing elsewhere, maybe, you know, the UK will be seen as, you know, somewhat as a safe haven.
And again, you know, that will help with investment, but I don't think we should underestimate, you know, if you've got an economy which is growing strongly, if you've got high productivity in that economy, overseas investment will be attracted to the country, irrespective of the changing faces that we've seen in, 10 Downing Street.
Michael Ambery: Anthony, that's a really good segue into growth. We've seen from the Mansion House, sort of reform that came through over a year ago, we’ve hit a one year anniversary of that pension funds and pension fund assets being utilised for, for growth within the UK.
I think we've got around 3.5 trillion pounds in pension fund assets, I guess, where, the new government has come in they've started off with pension reform, looking at where can economic growth occur through utilisation of pension fund assets. That started off with and probably private markets wondered if you had any sort of thoughts of where that British growth can come from and those private markets.
Anthony O’Brien: Well, I think this is the nub of the problem. So, you know, over the past 15 years, you know, what has been the UK's economic problem and it's been that low productivity. So chronically low productivity ever since the global financial crisis. And what has this meant? Well, this has meant that we've had basically flatlined real wage growth since then as well.
And that's obviously made people upset. Made people you know, vote for change, even for a new government. So if the government can change the product, you know, the productivity outlook for the UK, then effectively it can square that sort of circle between lower taxes and better public services, which we desperately need. So what can we do with that? Well, we can grow better with what we have. And I think the mood music again, there has changed. So we're talking, or the Labour government are talking about, you know, planning reform changes, changes, as you say, to pensions, being able to invest in more private assets rather than, you know, where they've been, placing their investments in the past. And perhaps, you know, better, relations with, our trading partners as well.
But also, you know, with that private asset investment, we can invest, you know, in those future, drivers of economic growth. So be that life science, be that education, be that AI. And, you know, perhaps the private market is, you know, that has those sort of startup companies which, you know, we can then unleash all of this investment, which is, you know, pent up and produce better outcomes for our, savings and pension holders.
Michael Ambery: That makes total sense to me. I guess in terms of outcomes and stats wise for private markets. I don't know whether you have any stats on that or whether you agree with the fact that we've looked to Australia, we've looked at Canada, and we see a sort of 1 to 2% per annum outperformance from those a sort of 35% over a much longer term, from those particular markets. So it does make sense, for private markets and particularly pension funds to go in that area if you agree.
Anthony O’Brien: I think so and you know, certainly the percentage holdings that they've had, you know, in Australia and Canada in private assets has been more than we've had in the UK, you know, pension assets, long term savings assets, you know, essentially invest for the long term. And I think it's very key here to actually, you know, get in with businesses which have a long time horizon as well.
And use those, you know, those investments productively. And you know, I do welcome the changes. And I do, you know, certainly see that there is the potential of, you know, getting better returns for, you know, for our pension savings, which, you know, if we can match what they've had in Canada and Australia we’ll be really doing very well.
Michael Ambery: We're all up for more money in the pot at the point of retirement, I think.
Louise Doherty: I'm going to ask a tough question now. Have to get your crystal ball out. We're going to, this is a question everyone asks. Thinking about the budget. So we’re expecting the first budget in October.
Anthony O’Brien: Yes.
Louise Doherty: What do you think might happen? Do we think Chancellor Reeves might try to get the tougher changes out of the way early in this term? What do you think?
Anthony O’Brien: Well, you know Reeves has already announced this 22 billion black hole in the fiscal finances. You know, whether it's totally, a surprise. You know, we can always argue certainly she, you know, very much had an inkling that there was a hole there. And if she didn't, then she wasn't on top of her brief.
So I think as we go to the budget it’s very important to look or try to rationalise back from where Labour would want to see themselves in 2029. So if you think on the eve of the next election, what would they like to see? They’d like to see you know, decent economic growth, they’d like to see improved public services. And at the same time not getting that by, you know, increasing taxes, dramatically. So with that in mind, I think, as you say, I think getting the bad news out of the way early will probably be the best strategy we’ve seen it in the past with many governments, you know, it's not a great surprise.
So I do think that we will see tax rises. You know, probably at first, you know, only inheritance tax, capital gains tax because they've ruled out, you know, the big three levers VAT, national insurance and income tax. But at the same time, I think we'll probably see a bit of a bending of the fiscal rules. So, you know, there's, you know, excluding the Bank of England payments will probably get an extra 15 billion in headroom, which could be very handy for, you know, sort of not having such severe cuts in public services that were implied in, you know, some of the fiscal arithmetic, which, which they do have.
So I think we're going to have to see some tax rises. I think a bit of fiscal rule bending, and hopefully, you know, a stronger economy that we've seen over the past six months, you know, might help her out as well. So, you know, here's to hoping and certainly, you know, the government will be hoping that we do get these economic changes by 2029.
Louise Doherty: And it's only fair if I ask Mike to also get his crystal ball out. And you can’t ask me that question. What else would you like to see coming out of the budget and thinking about retirement, what's happening in the UK. Thanks Louise. You know I love to get the crystal ball out and also dress up as well.
So in terms of what else would I like to see. I think we're focusing on economic growth. As Anthony sort of explained. Linked to that we've got to see adequacy. So what's the level of contributions? How does auto-enrolment change? That's already in the pipe as well. It was in the King's Speech. So we need to see that. I think the other things are other political hot potatoes. So housing reform and other savings in emergency savings. Both of those I’m troubled regularly for myself and for other people that I talked to, to say I can't afford to buy a home. When can I afford to buy a home? Should I be getting a pension? How do I afford emergency savings?
So I think we have to look for a budget that really reflects not only economic growth, but actually choice and support around that as well. So all of those measures are linked with maybe some sort of targeted guidance support, which I know we’ve mooted within the industry for some time. So I'd like to see that built up and legislation come through that, builds on the economic growth that Anthony spoke about. But then we take a leap forward within the industry.
Louise Doherty: So Anthony, thanks again for joining us. And I really hope you will become a regular guest on the pod with us.
Anthony O’Brien: My pleasure.
Louise Doherty: So thanks for joining us today on this episode of Thinking Forward. As always, just let me or Mike know if there's any other topics you'd like us to cover in future episodes, and you can catch up on previous episodes on the website. Just search Standard life Thinking Forward. Thanks
