#22 L&G CEO: 'This Is Our Moment' for the UK Economy

0:13Hello and welcome. This is the Big Boss Interview Podcast. I'm Sean Farrington, got Will Bain alongside me because, Will, you've been interviewing somebody who plays a huge role in our lives, maybe even if people don't know about it, from looking after people's pensions, massive infrastructure spending across the country. You toss it all up and he looks after over£1 trillion worth of assets. In the UK, they don't come any bigger, really, than legal and general, do they? They really don't, Sean. One of the absolute giants of British business, legal in general, touching our lives, well, in every way, really, from the homes that we live in, perhaps the transport connectivity that we have to get between those homes and our work, the offices that we go to work in and everything from energy storage to other kind of solutions that basically make up the plumbing of everyday life in the UK.

1:06As a result, lots of areas for us to get to. But I always think Legal & General are a particularly interesting company because they've got a real push to invest outside of London and the southeast as well, so right around the UK. So what are they seeing? What makes a good investment? What helps it grow there as well? But also what we're doing with our savings. And a warning from Antonio Simoes that we just simply are not saving enough. Now, you might go, oh, surprise, surprise. Pensions Boss says we should be saving more into our pensions, but they really do get a good visibility of those numbers about what we're saving.

1:41And they've got a bit of a concern at the moment that we really aren't doing enough. So we chatted a bit about that as well. OK, great. Well, let's hear the interview.

1:54Antonio Simoash, the Chief Executive of Legal & General. Thanks so much for being with us on the Big Boss interview. Good morning, Will. Thank you for having read a great piece with you in the Sunday Times. a little while back, we talked about turning your email off from 5pm on a Friday to 5pm on a Sunday. And I thought, I live in fear of my email most of the time. And I certainly don't do as important a job as you manage as much money or assets as you do. So how on earth do you do that? So well, this jobs are pretty intense, like most of our jobs. And so what I try to do is to focus during the week on everything I have to do for LNG.

2:29And I try to devote time to my family over the weekend. And of course, if there's something urgent, I will then do it over the weekend. But I also realized that if I'm not emailing people over the weekend, they also have a much better life, and they can spend time with their families. So I try really from 5pm on Friday to 5pm on Sunday, to not email anybody in my team. Do you find does it drip down to your sort of lieutenants kind of follow that and then pass it on to their staff as well? I think so, because, well, I've been at the receiving end of that, right? So I've been a CEO for two years, but the rest of my career, I was a divisional CEO.

3:04And so I had CEOs and chairs and others. And so I found that, you know, you email someone and say, oh, please do not reply, reply on Monday. And what do people do immediately, they start preparing because the big boss has just emailed them. So I try not to do that to other people. Do we have too extreme an expectation on some of our leaders? I know it's an extreme case. I'm trying to think of one's off the top of my head, but the boss of Heathrow, huge hoo-ha about him being asleep. I mean, it's three o 'clock in the morning when that fire starts. He is allowed to go to sleep, isn't he, as well?

3:31Do we have over-expectations on big leaders in the, well, not just in the UK, I suppose, around the world, about how on you have to be all the time to be a top leader? Yeah, I think also, Will, if I step back, there's an element of what's the expectation of a CEO of a FTSE company? And normally, you have a sort of stereotype of how that looks like. And I actually have said that I try to go to bed really early. I don't wake up at five in the morning and do 10 things before So cold plunge or any of these things. So I think we're all different. Right. And so my style is I work really hard. Of course, these jobs are pretty intense.

4:07But I also try to take care of myself, exercise, slow down and then spend time. I have a 10 year old and an eight year old kid. And so I want to spend time with them. So and I think the world has evolved is not that sort of, dare I say it, sort of macho kind of, you know, I sleep only four hours a day. and I'm working the other 20, I think the world has moved on to a slightly different type of leadership. And is that kind of stuff unhelpful then? Because I feel like that's being pushed, especially to younger people more than ever, you know, exactly the stuff we joked about, you've got to be up at five, and you've got to eat this and you've got to, I don't know, learn Latin for fox and run around the block 20 times and all this kind of stuff as well.

4:46Is that nonsense? I don't know. We're all different, right? And I think I do believe, you know, I've done tons of different things in my life. And therefore, I believe in effort and doing different things and trying different things. I just think when that becomes an expectation of what you have to do, then I think particularly for young people, as you say, that becomes an sort of an achievable goal. You'll look at some of the leaders today as like, I can never be that person. And I try to be slightly more relatable than that. And what do you enjoy doing when you get that downtime, when you get that phone and that email account away from you?

5:16So I have a sort of one-year-old Labrador. So I spend a lot of time at the moment trying for him not to choose stuff around the house. Mostly spend time with my husband, with my kids. It's sort of, to be honest, I don't have that much time. So my downtime is more kind of devoting time to them so that I enjoy, yeah, enjoy the time I have. Stopping Labradors trying to eat everything in your house, I know, is a full-time job for sure. Let's move into a bit of business then as well. Saving. A bit silly, isn't it? Pensions man asked about whether people should save more in their pensions, I suppose.

5:50But you've talked about this a lot over the years when we've had you on the programme. Is your simple view that just in Britain, we are just simply not saving enough for retirement? So I think, well, there's two aspects to this. I think pensions are the sort of silent powerhouse of the UK. And I think we can make much more of the power of pensions. But to your question, we know that 14.6 million, 14.6 million, that's 43 % of the adult working population in the UK is not saving enough for retirement. And so although we have this very large savings pot of 3.2 trillion of pensions in the UK, it's not evenly distributed.

6:33And so what does worry me? There are cohorts of this, there are parts of the population that are simply not saving enough. Young people, we were talking about young people. I've advocated that we should, that from the first day that you start working, You should be able to save for your pension. At the moment, the minimum age is 22. But if you start working at 18, you should be able to start saving for your first pound. At the moment, there's also a minimum hurdle. Then there's an interesting group in the population, 45 to 55-year-olds. So if you're, in a way, young enough that you didn't get your final salary pension, you know, the defined benefit pension, But in a way, you're old enough that you didn't start saving with the auto enrollment that only came in in 2012.

7:20There is a cohort where people haven't saved enough. And so it's not too late. We have 5.2 million workplace customers. The average age is 42. And what I would say for those individuals is that every little bit counts. So you need to save every day. So as a nation, we have a big pension sort of powerhouse, as I said. But individually, there is a cost of living crisis and many people that can't think about the long term because they need to think about the cash for the short term. But for the rest of the population, we need to save more. And yes, as the CEO of the largest pension provider in the UK, I would say that, wouldn't I?

7:57I definitely want to come to putting that powerhouse to use as we move through our chat today as well. But 43 percent, pretty worrying number, isn't it? Yeah. And it is. It's the tragedy of being one of the wealthiest countries in the world. You know, I've lived in many other countries that are obviously not as privileged as us in the UK. But we have 43 percent of the working population. Well, there are not saving enough. And so part of that is education. We have we're working with the rest of the industry on a sort of financial education campaign to to raise awareness. And it is compounding is the eighth wonder of the world.

8:33And so actually, if you start saving earlier, that compounding interest, that compounding power of your pension makes a huge difference when you get to be 60, 70, 80. Do you think that the levels, the rates of that auto enrollment need to go up? What is it? I'm just glancing down on my notes here. Three percent from kind of employers, five percent ish from employees, four or five percent from employees. You know, there are colleagues in the pensions industry think that should all just go up. Absolutely. So I've made that point. We had a blueprint for growth, which I – Which you kind of came and chatted to us.

9:04I know, I know. I talked to you here in the BBC. And that overall report, which by the way has a 0.7 % GDP increase by 2035. It doesn't sound like a lot, but it's 220 billion of additional GDP growth. There are six levers and one of them, several of them, the government is already acting on. But this particular one that I've advocated for is an increase of that percentage, which is currently, as you say, is 8 % to 12%. So that in between employers and employees, over time, we increase the rate of contribution to pensions. As I said earlier, start from the first pound, start from 18 years old, but also increase the contribution to 12%.

9:47That's what Australia does. If I look around the world, I've worked in many different markets. If you do it now, you don't need to do it now in 2026. You can do it progressively, but an increase towards that 12 % will make a big difference for those 14.6 million people that I talked about. Break it down for us then how would that split work in the 12 % first of all in your mind? So obviously I'm a business leader for the government to decide but the way we have advocated in that reportage by the way is great read for anybody who wants to read it. We've said that the 3 % from employers goes to 6 % and the employee contribution goes from 5 to 6 but there's many different ways as well of doing that but that's what that's what we've modeled this is a report we did with Oxford Economics and that's what we modeled in that in that last month when I issued the report that's what we that's what we proposed let's take them each in hand bringing employers along with that at the moment we were just chit-chatting before we got going today about everything that's in the news about pressure on hospitality or changes that we've seen pressure on retailers or whatever it's very difficult isn't it for business leaders I speak to them big and small, particularly those medium sized ones that come on our programs every morning.

10:54Yeah, great idea in theory. But where am I going to find that when I feel like I'm being squeezed absolutely everywhere? How do you sort of square that? Look, that is the reality that we live today. There's both a cost of living crisis in the employee side and there's obviously a lot of pressures on the employer side. So if I learn from the previous pension commission, so if you go back what the Deir Turner did back in 2006, 2007, the auto-enrollment proposals were only implemented in 2012. So currently, we have the next version of that, the new pension commission. And what we are advocating for is a glide path for that increase.

11:31So we're not saying increase it in 26 or 27. We say progressively over time. And I think as a nation, that allows us to think about the future. We've been around for 190 years as a company. This year, we were created in 1836. And I hope that 20, 30, 40 years down the road, people look back and said in 2026, the Pension Commission advocated for this glide path. And we're now much better off as a nation. And we're going to cycle back to growth a little bit later more broadly. But how do you get that balance right to them with, you know, potentially that signals to companies it's getting even more expensive to hire people.

12:07I'm not going to expand my business. I'm not going to hire more people. How do you keep that balance right, do you think? So I think if you signal that that's where you want to go, you give companies enough time to prepare for that. And hopefully you can adapt in the right way as a company. But if you think of – I'm thinking primarily of our customers, which are the ultimate employees of companies, that 14.6 million that we were talking about earlier. But then also the power of that pension money being invested back into the UK economy. So ultimately, that will generate more growth. It will be better for it.

12:44So I know it's easy the way I'm saying it. But it is the logical thing to do as a nation. If I look at other examples like Canada and other countries that have large pension industries, that's how they've done it. And tax, I suppose, is a critical bit around that then as well, isn't it? Not making the tax system more difficult for that. Yeah, and more predictable. And if we're growing, obviously, that makes that equation easier. And just hearing kind of the debate in the run up to the budget, obviously, some of those fears didn't come true or weren't compounded. But just how damaging can that be, again, to an attitude for saving when people think, you know what, I'm not going to save here, because I'm not sure what the government are going to do with it one year to the next, forget which government it is.

13:25That worry, regardless of which political party's in, right, that can be pretty damaging. We had Mark Fitzpatrick from St. James' Place on saying exactly that really recently. I heard that. And we see that. But it's any event, any uncertainty in the world, and clearly any uncertainty, particularly in the UK, we always see that behavior. So what's important is that we help our customers through – we have more than 12 million customers across all of our products. We help them through that uncertainty. And on those customers themselves, incredible stat from HMRC that our team dug out this week, that another kind of nearly 700 ,000 young people, those young people we were talking about between 20 and 29, stopped saving for their pension at all.

14:09There is a proper squeeze on that age demographic at the moment, isn't there? We were talking about the unemployment numbers on the program last week, unemployment in that sector going up. It's easy, isn't it, for us, two middle-aged men to sit here and say, oh, well, people aren't saving enough. But how do you do it? How do you manage it if you're in that age group and you feel personally? We talked about companies feeling squeezed, personally people feeling squeezed. So first, we need to start with the actual part of the population that actually cannot save, right? Where they're below the poverty line.

14:40That's the part of the population that I worry the most about. But then there's a part of all of the population, particularly young people, that there is an element of education where the additional savings that you do right now will make a big difference in your 40s, 50s and 60s. And it's difficult if you're 25 to really think about, you know, when you're 70, right? But there is a role for us to play as an industry to educate that population. And at the same time, to put, as I said, to put a bit of pressure on employers to say, if we over time increase those employer contributions, the proposal that we've made, I know it's difficult, but it will be better for us collectively as a society.

15:19I think that leads us neatly, doesn't it? It's kind of investing in the investing culture in the UK as well. One of the other things Mark Fitzpatrick was talking about, he said, no one cares in the UK about investing, you know, investing in stocks and shares and things like we have seen, certainly in my time doing this job over 10 years, an explosion of more of these apps for investing in. But do you still share Mark Fitzpatrick's concern that most people don't think it's actually for them? So, again, let's look at the big numbers, right? So we have in the UK$9 trillion invested in property. So that's what people have as part of their homes.

15:51Of that$2 billion is mortgages. So there's$7 billion or so of equity. Let's call it that way. But you're right. There's$2 trillion of cash savings that at the moment are cash and people are not investing. And then on top of that, you have the$3.2 trillion that I talked about in pension. So if we can direct particularly those two parts, more of cash savings being invested productively for the benefit of the savers, but for the benefit of society, and then more of the 3.2 trillion of pension money also being invested productively in the UK. I think this is the silent powerhouse that I talked about earlier.

16:29How do you think we do that then? So on the cash side is about education. As you know, I did a big part of my career before LNG in banking. and there's more that we can do as a financial services industry to help people see the returns because sometimes you think that cash is safer but there's a huge opportunity cost of not investing. And you can see that over the last couple of decades in terms of how equity markets have performed, debt markets and if you left your money in cash, that's a huge return. Back to my compounding miracle, that's a huge amount of money that you left on the table for us to explain that.

17:04Whose job is it to push that, I suppose, then as well? Because I guess from the bank's perspective in particular, right, as long as people are saving it with them, it doesn't really matter to them. Well, it does. Well, certainly I see that as more of a citizen, that it is a responsibility for us to do it because ultimately for the savers, that is a better outcome to be investing. And especially depending – we do this as a pension provider, right, depending on your age and the profile. So, for instance, at the moment, in your defined contribution pension, we are allocating 15 % of the default to private markets so that you are investing productively in more illiquid products, but they give you higher returns.

17:42And if you're a 20, 30, 40-year-old, that makes much more sense. Later on in life, yes, you want to de-risk. So, these concepts are not particularly difficult to explain. Actually, the FCA is putting some guided advice or sort of targeted support. Make it a bit easier for you guys in the industry to kind of explain to people what's going on. Because up to now it's been a bit difficult for us as providers. We can't quite give advice. People have to pay for advice. Has that been too weighted to protecting people rather than educating people? I agree. And 2026 is actually a turning point. So we were one of the first firms to apply for targeted support.

18:21We want to be able to be communicating with our more than 12 million customers on, here's the simple things you can do. And what is that? Is that as simple as emails? Or what is it? How does that communication, what does it look like, do you think? What does good communication look like? So, yeah, that's an important point because we have to have the access to that email. People are not just putting it straight into their junk filter or whatever. But a lot of the customers contact us, and we know sometimes that they're making the wrong decision. But because we don't have that targeted support framework, we can't give them the advice saying, well, you shouldn't move your pension into cash because it's a bad idea.

18:53and this targeted support will allow us to do that and allow us to do in a way that it's free for customers and so we're very excited about that and so we were right at the front of the queue of wanting to do that as LNG for our customers. I've got written in block capitals on my notebook in front of me here, risk. That feels like the word in your world at the moment, right? Whether it's around policy, whether it's around decisions that you guys yourselves make, where do you think we sit as a country in terms of our appetite for risk? Individual as investors, you mean, Will? So I think... And companies, I suppose, as well.

19:25So I think we're lacking, as a country, maybe I make a bigger point, which is I think we're lacking confidence, actually. I think there is an element of we talk ourselves down as a country and therefore that happens with individuals as well. If you think of the different markets around the world, obviously, in this case, I've quoted Australia, I've quoted Canada, I have to quote the US. You see individual investors being more confident and therefore in that risk return, they see both the risk, but they also see the return. And we tend to be, as a society, more risk averse. It's amazing that, isn't it?

19:54Well, I've gone, because I've worked for the World Service, I've gone to work in America a lot. And the number of kind of just everyday people who will talk about, who will have an interest in what's going on in the stock market, will understand what's going on, will want to talk about it. I mean, that is completely different to the culture. But there are many other countries around the world. I lived in Hong Kong for some time and you're in with a cab driver and saying, oh, yeah, tell me about the dividend. Is the dividend progressive or not? and they would kind of argue with you and kind of ask you questions that that doesn't happen in the why not i think we don't have the same investment culture but we like i'm i'm i'm a glass half full time type of guy i think we we can do that right so we have so much uh power in the savings that we already have as an economy it's us collectively and i don't think this is on government is on us as well as business leaders to to help educate people and and right now we're taking specific actions the fca is helping we are doing this as firms so i think there's there's a potential to to to change that and in terms of that policy then as well you guys signed up to the new mansion house accord around what kind of big investors were doing and particularly around um uk stocks and shares as well does that go far enough would you like to see that built on so of that blueprint for growth one of the areas is precisely the mansion house accord and i'm very positive about it we should probably explain this is kind of you guarantee kind of 10%, isn't it, but 5 % goes to UK listed companies.

21:15Exactly. So if you think of LNG, talking about ourselves for a second, we have 200 billion of the 800 billion DC market, so a quarter of the defined contribution pension. So this is the pensions of, you know, think of Tesco, NetWest, Virgin O2. Those are all real clients of LNG. We're helping with people's savings. So what we're saying here is that a portion of those savings should then of that pension pot should be invested in the real economy, in real assets. In our case, actually our default fund is 15 % allocated to real assets. So the mansion house accord is 10 % of which half in the UK we have 15%.

21:57And what does that mean in practice? That's affordable homes around the UK. That is urban regeneration, the BBC studio in Salford, which we financed years ago, or actually I was just in Cardiff where we've invested over a billion in Cardiff, including also BBC Wales, or the four billion partnership we have with Oxford University. So those are real, the money of people's pensions being invested directly into the UK economy. And I think that's going well. We have that fund, which is a private market success fund, is now 2.6 billion. That number should be much higher. And so that will continue to grow exponentially.

22:34And it's easier for me to explain to you your pension is being invested in affordable homes across the UK. And you can see it's a good return because that's what we want to give customers. But it's also good for society. The pushback is always, isn't it, this fiduciary duty is the legal term, is it? The guarantee that you have to get an investment for people who are investing with you so that they have a return so they can have that pension when they choose to retire is that, well, all we need to do is just – We want to make sure that that's as safe as possible and grows at an amount that we know is possible and can flag that to people and that having a company stock and share that may go up and down a British startup or whatever is risky to that.

23:13Do you accept that pushback? What do you think that that lacks kind of confidence? So I think think about the 15 percent. So what we're saying is if you are in your 20s or 30s and you have a long-term investment horizon, part of your pension is in an investment that's less liquid. And therefore, it can weather those ups and downs. And it's a very diversified fund. So it includes real estate. I mentioned affordable housing. It includes private equity, venture capital. So it's a very diversified private credit. So I'm very comfortable that that's the right investment for the individual. And I think there, and since you talked about fiduciary responsibility, absolutely.

23:57We're the largest asset manager in the UK. We have 1.1 trillion assets under management. Our number one responsibility is towards those customers and clients. So it's the fiduciary responsibility. That's why I've been very clear that, yes, it's 15 % of the overall pot. But I'm saying that we all invest in the UK, where we're heavily invested, but also in other places around the world. So anything that goes close to mandation, I'm not in favor of. I've been on the record saying that. So the right investments need to be there and the right return, the right risk return, to use your words. One of the areas where you've been investing a lot, data centers.

24:34Yes. Very interesting area, obviously, with the AI boom. When people come on the program and talk about AI being a bubble, is that something that gets you looking at your phone and staying up a little bit later at night as well in terms of that investment? I sleep really well. My kids are now a bit older and the dog is not creating too much problems. So I, AI, look, incredible opportunity for us. What a moment to be alive, right? So it's in the sense of the potential for productivity improvements in AI. I see it in my own business. I see it with other CEOs. What we are investing in, so we launched a fund, a digital infrastructure fund.

25:12So we're focusing more on the real physical economy aspects of AI. So data centers, energy, fiber. And so I feel very positive that there's so much more investment. And we launched a fund last year, 600 million first close. That I think will be a very good investment. The valuations of AI companies, this is where people talk about a bubble. But I think, Will, that's a different aspect. Like that's the sort of equity valuation of those companies that could adjust. We saw that. This is I've been doing this. But I suppose they're the people who are renting off you ostensibly down the track, though, aren't they, I guess?