basis for beveridge 2.0
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Dr Nigel WilsonChief Executive OfficerLegal & General Group
LEGAL & GENERAL GROUP PLC
Being a Disruptor is a Privilege and a ResponsibilityTCS Summit, Europe 2015October 2015
Dr Nigel WilsonChief Executive OfficerLegal & General Group
LEGAL & GENERAL GROUP PLC
Auto-Enrolment: the Basis for Beveridge 2.0?Prospect Magazine RoundtableNovember 2015
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LEGAL & GENERAL GROUP PLC
The changing landscape for UK pension savings
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DEFINED CONTRIBUTION SAVINGS
We are getting greyer… we need to save more for a longer old age which may include care costs.
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LEGAL & GENERAL GROUP PLC
Current Successes
Rigorous analysis by Turner Commission
Cross-Party consensus, well-implemented by Steve Webb and Ros Altmann
90% + are staying opted-in
Next Challenges
Digital Engagement for SMEs
Reduce charge cap from 0.75% to 0.5%
Auto-escalation
Aggregation/Pot-follows-member
Fairer tax incentives
Auto-Enrolment: Successful so far – Next Steps Required
EET Tax Treatment Supports Auto-EnrolmentFlat-rate PTR at 20-25% Optimises Incentives and Cost
4Providing our retirement customers with freedom & choice
Housing, Lifetime Mortgages
Freedom & Choice
Policy changes
• Retirement housing for the c4 million people looking to right size
• Entered the UK lifetime mortgage market, the over 60’s having £1.3trn of housing equity.
• Cash-Out Retirement Plan• Fixed Term Retirement Plan• Secondary Annuity Auctions
• 2014: “No-one will have to buy an annuity” George Osborne
• 2016: Secondary market for annuities to be introduced
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LEGAL & GENERAL GROUP PLC
Retirement Balance Sheet: Last Time Buyers, Lifetime Mortgages
• Chronic Shortage of UK housing
• A third of retirees want to move/rightsize
• Only 2% of housing is built for older people
• Tailored housing needed in the right places: Family, Friends, Facilities
• Frees-up housing stock for families
• Part of the care cost solution
• For those who want to stay in the family home, Lifetime Mortgages are a solution
• L&G entered this market in March and is now seeing £10m of applications per week.
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LEGAL & GENERAL GROUP PLC
Pension Savings as “Slow Money” for Infrastructure
Media City, Salford, and L&G Investment • Individual Savings are the basis of all institutional investment
• Recognised by Commissioner Hill’s Capital Markets Union…
• …and by George Osborne’s LGPS proposals
• Digital and Data can pinpoint where a saver’s assets are invested…
• ..for yield enhancement, local jobs and growth
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LEGAL & GENERAL GROUP PLC
L&G: Long term direct investments
We continue to drive risk-adjusted returns upwards through direct investments in long dated real assets where the banks have left behind ‘white space’. Investment in housing and regeneration are economically useful for us, for the broader economy and socially useful too.”
£15bnPlaces for people:£252m, acquiring 4,000 homes, building 7,000 houses, 50 year lease
Thames Valley Housing:£40m, 25 year facility enabling 500 affordable homes
Royal Liverpool University Hospital:£429m rebuild
English Cities Fundschemes in Liverpool, Plymouth, Canning Town, Salford and Wakefield: over 5.4m sq ft of mixed-use space, brownfield land
Transport and Logistics: £320m, maturities to 30 years
Aberdeen international business park:£127m investment, 335,000sq ft office space
CALA Homes:£210m investment (47% stake), further £200m for Banner Homes
Hyde Housing Group:£102m investment15 year facility
Sentinel Housing: private placement (registered social housing provider in Hampshire)
University of Southampton:£93m, 1,104 beds, 40 years income
Methodist Care Homes:£70m investment, 30 year lease
Media City, Salford Quays:£503m investment . 50% ownershipPRS Investment – 100s of new homes
£162m Leeds regeneration project: 200 acre mixed use site with potential for 7,000 homes
£400m Cardiff city centre redevelopment joint venture
£200m Bracknell regeneration partnership with Schroders
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LEGAL & GENERAL GROUP PLC
Pensions Auto-Enrolment: Basis for Beveridge 2.0?
“Europe accounts for just over 7% of the world’s population,
produces around 25% of global GDP and has to finance c.50% of global social spending... It’s
obvious it will have to work very hard to maintain its
prosperity and way of life” Angela Merkel, German Chancellor
*The Economist 1 June 2013. From the print edition
Polling shows 18-24 year-olds are increasingly likely to see welfare as a personal, not a State, responsibility.
Public-private risk-sharing offers a solution.
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LEGAL & GENERAL GROUP PLC
Welfare reforms: extending fee-capped auto-enrolment to protection
THE SYSTEMS ARE ALREADY IN PLACE. “Today’s welfare state is a sadly corrupted version
of the triumphant settlement made in 1945. WhenWilliam Beveridge laid the foundations for the creation of a proper national safety net he intended that most working-age adults would rely on benefits in temporary periods of hardship and the system would continue to encourage self-reliance. But over the years, through a combination of naivity, cowardice and electioneering, governments distorted his original intentions.”Camilla Cavendish, then Sunday Times, now Policy Unit, 10 Downing Street
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LEGAL & GENERAL GROUP PLC
Four steps to Beveridge 2.0Replace pension tax relief with flat rate
Phase out ‘contributory’ benefits
Raise employees NI threshold
1234 Support
employers
Net saving to UK Government of £11.8 billion
Introducing a flat rate of pension contribution tax relief at 20% saves
UK government £13bn p.a.£13bn
Contributory ESA costs £4.35bnContributory JSA costs £480m £5bn
Increasing the employees NI threshold to £10k costs £4.7bn
£(4.7)bn
Increase the Enterprise Allowance to £4k, benefitting SMEs, costs
c£1.5bn£(1.5)b
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Saving / (cost) to
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LEGAL & GENERAL GROUP PLC
3 minutes to policy issuance
Micro-insurance launched in India in 2014
2 Million L&G/IndiaFirst Policies bought in 2 months in India
Quidcover variants will be launched in the UK
Auto-enrolment allows larger contributory benefits, for lower premiums than currently through NI.
A Premium of 0.5% of salary can replace 70% of income for 12 months in the event of earnings loss due to sickness
This is c. double Contributory ESA/JSA for a basic-rate taxpayer. Premium of $3-$5
per month for $3k cover
Quidcover – from India to the UK Big Data, Digital Delivery
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LEGAL & GENERAL GROUP PLC
“Insurance has a powerful social purpose. We make a promise to our customers that we will be there to stand behind that promise when disaster or tragedy strikes.
Our clear aim is to be a force for good in society, make every day matter for our customers and colleagues and live by the promises we make in our high quality products.”
Every Day Matters: our Social Purpose
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