Elizabeth Corley - CEO, Allianz Global Investors HARDtalk


Elizabeth Corley - CEO, Allianz Global Investors

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Amnesty International. Now it is time for HARDtalk.

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Elizabeth Corley is one of the most powerful women in finance anywhere.

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She's the boss of Allianz Global Investors, overseeing over $400

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billion. Her biggest clients are companies that want their pensions

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managed. What does she have to say about the economic turmoil and

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equity investment? Where does the responsibility for change lie and

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just how brittle could be future Elizabeth Corley welcome to

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HARDtalk. You sit atop a pension fund management worth hundreds of

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billions of dollars. From your vantage point, why do you think the

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market in Europe is so jittery at the moment? That is a great

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question and I think you have phrased it a great wave. It is

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jittery on any news. Europe is going through a very difficult

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transition, from a line on too much debt to get in its books in balance.

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-- from the relying on. Any headline, there is a distorted

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reaction. We want to keep a level head and keep calm. I am not sure

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how you managed to do that when you are trying to transition away from

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too much debt but countries are taking on more and more debt last

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engaging in a savage austerity. Do you think there is too much

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austerity? I think we have got the right balance between austerity and

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structural change. Austerity on its own is not enough. We have got to

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see gross, a boom in the economy from export. Without austerity

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Europe will be too indebted to be strong as a trading regions. Do you

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think the fiscal adjustments being asked of countries like Spain with

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bond yields of 6% are actually feasible? They are having to cut

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their GDP by more than 5%. It is pretty unprecedented. There was a

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lot going on because it is a new currency. We are in a new

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environment we have not been through before. The austerity

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packages are part of wider structural changes going on in

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Europe. They are a painful growing up of the currency into a strong

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currency. A lot depends on the individual states but also what is

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done collectively in Europe in terms of political growing together

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and working together. Undoubtedly there are those who say Europe

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needs to work better together but there are plenty of people who also

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say the path that Europe is on is just a economically illiterate. If

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you're taking on not more and more debt yet to dealing with more and

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more savage austerity, reducing your chances to grow, at some point

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the last it is going to break. cannot say there are not risks,

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there are big risks but they are everywhere in the world. Inside the

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eurozone, outside the eurozone, in the US and emerging markets. The

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whole world is going through a delicate and sometimes dangerous

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transition from an old way of running to a better way of running

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which is more stable and based on genuine growth. Europe is part of

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that but not alone. I am wondering how sustainable the approach is.

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There is a recent Goldman Sachs report that says the attempts to

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restore competitiveness will mean with a squeeze on the real economy,

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the cash economy is that in places like Portugal you can end up with a

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debt to GDP ratio of 35% over a decade. That is out of kilter and

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counter-productive, isn't it? is no way of getting out of the

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austerity measures. You have to be careful about judging what is going

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on by the headlines. We talk to people on the ground, we have an

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extensive presence and our view it is not without risk but we need

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accommodation of -- and the deep combination of measures. If you

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look at individual markets, some have maintained competitiveness but

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many have not. The labour market changes are as important as the

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austerity and the stimulus for export is important. If everyone

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agreed with that approach why do you think the chief economist of

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the IMF described the market's reaction as schizophrenic? They see

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the measures that have been taken leading to reduced growth. They

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react negatively against something they want. It doesn't sound as if

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everyone buys into the part you are suggesting. Markets always have two

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sides. You are always going to have differences of opinion. We should

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expect to see differences in opinion. The bigger issue is what

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is being done for growth. There is focus on austerity and the way in

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which the European Central Bank has helped by a three-year window with

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an injection of monetary policy. The other side is what is happening

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in terms of recapitalising with the banks and regulations. We are still

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dealing with the legacy of the crisis in terms of the regulatory

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agenda. Some of the schizophrenia we see is there because we have on

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the one hand and monetary policy and fiscal policy aimed at getting

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Europe fit but legacy issues from the crisis and a regulation that

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comes with that which can be negative for growth. He former

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chief economist from the European Central Bank talk to us recently

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and said the problem with that the increase in debt is that it does

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not solve anything. He said the fundamental issues remain to be

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addressed. Elsewhere he said that this, essentially, is like drunks,

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doping the banks. -- like drugs. What we see it as his have a window

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of opportunity for Europe to fix itself. The ECB has created the

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three-year window. It is up to the participants in the market - banks,

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policy makers, politicians to do what they can to take the measures

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on austerity and on the labour market freedoms. He is right, it

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does not fix it. It is a means to give us the time to fix it at the

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right pace. What happens if it doesn't work? We think the

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consequences for the world are very severe. Our central scenario is

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that it will work. We will see strong policy implementation in the

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peripheral states. Presumably you are also gaining Greece leaving the

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euro? -- gaming. You must have a plan... It is feasible that in the

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Greek elections, the Greek people - it is a technocratic government

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which might repudiate the deal. vast majority of the population in

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Greece want to stay in the euro. But they do not necessarily want

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the terms under which the deal is done. It is a great advantage that

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we have strong technical skills in the peripheral countries. They

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understand economics, the way capital markets and monetary

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systems work. They are not worried about their future political

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careers but getting the country in state. They do not have a

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democratic mandate. They may well turn on you. I am interested to

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know, I am sure you will not show the plans but do you consider the

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possibility of these countries leaving the euro? As the chief

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executive of a large company with pension and private money with us

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we have to look at every scenario. How to prepare for the unexpected.

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That would be the case of a terrorist attack, a political event,

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a tsunami. We sit very much in that sort of business continuity context

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that we plan for it but do not run a business in that way. Given that

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Europe is pretty much a basket case at the moment, where else are you

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looking for long-term investments? Emerging markets? We see faster

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growth in emerging markets and Europe in the next five years but

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still in Europe. There are some thriving parts of Europe - sectors

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and countries. It is an absolutely essential trading partner for the

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UK and others. When you are moving into emerging markets to have

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talked about trying to engage in company culture, to be on the

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shoulders of those running the companies in order to make sure

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they do their job well. How do you do that in a place like

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China? The most important thing anywhere is to have teams on the

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ground. We are a global investor with 500 professionals around the

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world. They have got to have people who can engage locally in of China,

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Singapore, Korea. We do not engage in public but in private. We don't

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find a difference in engaging with a Chinese company Bilton company. -

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- Belgian company. Do you think the company culture generally,

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especially in regard and too short- term returns, do you think the

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balance has got a bit wrong in recent years is nap I think we do,

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actually. As long-term investors within the focus on quarterly

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earnings, it forces you to look at quarterly earnings and that pension

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funds have to think about the terms on a quarterly basis is a step too

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far. Do you like the idea of having the two classes of shareholders -

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those in for the long-term get a better class of the voting rights

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than those in for the short-term? We have one vote. A lot of people

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think that is an effective way of moving against short-term profit.

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Wouldn't it played to your advantage? We would rather see

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shareholders to want to engage in the company and stayed there. If

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you look at riots, you start with good intentions but end up creating

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first class, second class and third If you are engaged, or what is your

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position on the other hot topic, executive pay? Do you agree as a

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shareholder that it has got completely out of whack. I do not

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think that is the right way to describe it. A lot of people do.

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think there should be some fundamental principles. This is how

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we engage with people at the board level and the people that we invest

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with. There are fundamental differences. If a company does

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extremely well and it is producing dividends and growth for investors

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and the good quality consumer product and is ethically managed

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then the people running that companies should get paid for

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performance. But it is balance, isn't it? Exactly. We like before

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performance. The dislike pay for failure. Add disconnect between

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executive pay and shareholder rewards is something I am

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particularly unhappy with. Are you unhappy with Barclays? They are

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coming up for their general meeting and there is a lot of disquiet

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about the fact that shareholders have got �725 million in recent

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results and pay on bonuses has gone up to �2.2 billion. That does not

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sound Fiore. You will never get me to speak on individual company. --

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does not sound fair. But that type of balance. To me, as someone who

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is uninitiated, and that is out of kilter. Looking at the wider

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example, it goes back to what I said at the beginning, the right

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balance between rewards for shiel warders -- shareholders, investors

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and employees. Let's look further at the magic circle of those on the

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board and the shareholders. Outside, people see figures like the CEOs of

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the top 100 debt companies in Britain, and their pay has gone up

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over the last dozen years, compared to when they were getting 47 times

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the amount of the average full-time employee, now it is 88 times. --

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FTSE. Given the current economic circumstances, how can that

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possibly be right? If you look at the wider issue on a global scale,

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the disparity is growing, it is not narrowing, it is growing. That's is

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not healthy. If it continues to widen, it will create significant

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social tension and risk. The question is, what do you do about

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it? We think you should go and engage with companies, and we do it

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in private, have conversations about what they're doing and if

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they are going about it in the right way. The something that

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concerns a lot of people about the amount of money that they

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themselves have, let alone these executives in top positions, you

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are responsible for millions of people's pensions. Is the brutal

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truth that we have to confront is that as we are living longer, we

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should expect of in return? That is such a tough question. -- expect

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less in return. They have to think about how long we are working. And

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we are engaged in a lot of think tanks on this. We care passionately

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about this. We had the responsibility for managing

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people's money but it is the outcome that matters. It is not

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just the money, it is, can people live on that money? The returns

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available for investors are low. People will have to work longer or

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save more, we have got to produce good results for them and there

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must be better value for money. They are working with other members

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in the industry come up with the Government, with policy makers, not

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just in the UK but in other countries, to see what we can do

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about that. There is a lot of concern about pensions being sold.

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There is a lot of evidence being produced on how people are frankly

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being ripped off on their fees. What are you doing about that?

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wasn't a conference yesterday with the pension Minister and others

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talking about good contribution schemes. -- I was in. We have to

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engage with the Government, with the regulators on how we can make

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sure we get really good quality schemes available for people. We

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think the time to do it is now. you think it is fair to people?

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terms of the information, yes. There is a lot of information.

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does not answer the question. about how do you get that

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information in a way that is understandable. We are doing a lot

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of work in Europe on how we can improve the quality of information,

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particularly on risk and how it is understood. Regulation has

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specified how we have to communicate. They were the very

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first to introduce key investor disclosures. We did that way ahead

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of the deadline. It is a great step forward in Europe but it is not

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enough. We have to consider how we can get not just information but

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valuable information. How can we do it so a person who is not a

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financial genius can compare the price of one product with another.

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There is a lot of work to be done on that but we are very committed

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to making it happen. Do you shudder with Shemar revulsion the you hear

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things like the report last year of people being charged 1p in the

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pound but, because of compounding, the pension cost actually add up to

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40 %. -- shame or revulsion. Nobody fully understands the power of

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compound interest. David and I have spoken about this. There are a

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number of research papers on this. I think he is put in a spotlight on

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exactly the right issue which is the effect of compounding and the

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fact that people don't understand interested. We want to find a way

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to describe it on a level playing field with all of the products to

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make sure that people can understand the implications of that.

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While at the same time not scaring people of to your competitors?

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is not that. The worst thing that you can do right now is nothing at

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all. People have to save. You have to rebuild confidence in his system

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that has been shaken, rightly shaken I think, no one could

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criticise individuals for having a lack of trust in the system at the

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moment. People are surprised and shocked by the scale of the

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conflict -- the problems. We have to rebuild confidence. What we

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don't want to do is make people so destabilised that the stops saving

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altogether. Then there will be a timebomb. -- they stop saving.

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People like David are great at shaking our people and getting them

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to think. We are working very hard at that. -- shaking up. You have

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got every right to roll your eyes in despair about this question.

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am dreading what it might be! talking to you not just as the boss

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of Ali and global investors -- Alianz Global Investors, top female

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executives are few and far between. Do you have any sympathy at all

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with the statements of the vice- president of the European

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Commission who has tried and failed to get companies across Europe to

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sign up to targets for female executives. What do you think about

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that? The first thing I would say about that is I am on the record as

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against quotas. That is the last resort when we have failure. That

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means that every single woman or minority that gets into his senior

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position by merit is looked at in the wrong way. Targets and an

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interesting idea. We have voluntary targets with an our company. I am

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on the council and we are working very aggressively towards those

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targets. You are working aggressively but there must still

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be a lot of discrimination and sexism for women not to have risen

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to the top and the numbers that they ought to have. Discrimination

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is significantly less than it was. It is definitely in decline. We

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have something called unconscious bias, all of us, men and women.

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you perceive that when you are working? I am sure you are treated

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with the other was respect but do you get a sense of it? I don't and

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career. There has been discrimination but I have shrugged

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out of. There is a survivor bias and the women that have been able

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to shrug out of. I do not think it is appropriate that I have had to

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face that but I was not going to make a big deal of it. What has

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changed in the last 20 years is you get significantly less of that type

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of discrimination but we still have problems. We still have the fact

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that the only people who can carry a child are women. If you want to

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have a family, a normal family life, you have to find ways of making

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sure that families can survive through their 30s and can come back

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