Aon chief’s new angle on the importance of pensions

Diversity was built into Cary Grace’s DNA – almost. Her early years were spent in what was essentially a social experiment, a planned community outside Washington DC, where diversity and inclusion were two of the founding principles.

“I didn’t think it was different at the time,” she says. “And when you spend your first 20 years in that environment, the message is that anything is possible.”

Which is why, alongside a love of numbers, she embarked on a career in financial services about 30 years ago. Reality, especially the experience of women in the workplace, was waiting.

“I was either confident enough or naive enough coming into it because of where I grew up, that I looked at it and said well I can change this,” she says, adding that she was fortunate to have “phenomenal sponsors and mentors that really just took a chance on me”.

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There has, she acknowledges, been a huge systemic challenge for women in parts of financial services but, she says, change is on the way.

“We’re at a point in the industry where I’ve actually never seen as much conversation, like open conversation, happening. And that open conversation truly would not have happened even five years ago so I think that’s a really big positive.

Next generation

“We’re better now but we’re far, far from where we need to be,” she says, adding that her goal is “when I pass on the baton to the next generation, I want them to have different challenges, I don’t want them to have the same challenge”.

In the longer term, she’s a big fan of meritocracy over devices like gender quotas. “There’s not a woman I know who wants people looking and saying ‘well why are they there’. I mean I’m doing what I’m doing because I’m the best person.

“And I want my daughter to have every opportunity but I want my son to also.”

Aon was most recently in the Irish headlines for its very brief public courtship of rival Willis Towers Watson in early March.

The US group was forced by Irish regulators to confirm that it was in early-stage talks with Willis Towers after news of its approach leaked. With Willis Towers Watson domiciled in Ireland following a previous merger, the requirement to formally confirm their interest took Aon by surprise.

Just 24 hours after conceding that it was pursuing the merger, Aon pulled the plug on the deal citing the forced disclosure “at a very early stage in the consideration of a potential all-share business combination”, though they held open the prospect of returning to the table at some later point.

Unsurprisingly, it’s not an issue, Grace will comment on.

Any doubt about her roots disappear when she gives you her full name – Caroline Sullivan Grace. Her Irish American heritage has been, she concedes, "a very big thing". Her father's family, the Sullivans, hailed from Limerick while the Graces on her mother's side were Kilkenny people.

“Yeah, so when most girls were taking ballet, I was taking Irish dancing,” she recalls. Though born in the US, her father made a point of learning Irish as an adult with a friend. He used to return to Ireland twice a year for a time to try to trace his roots.

She gets a chuckle from the fact that the name of the company she now works for is also the Irish word for one. “If you’re going to take one word from the Irish language, that is the best word to take.”

She started out with First Chicago Bank in 1990. In a time of significant M&A activity in the sector, she saw the bank merger first with the National Bank of Detroit and then Bank One Corp to form what is now a part of Chase.

In 1998, just around the time of that second merger, she moved to bank of America before joining global professional services company Aon in 2012. Having served ina number of roles. she is now chief executive of the group's global retirement and investment business and has been listed about the 25 most powerful women in finance.

Her prime focus is to throw a spotlight on retirement – and specifically how to ensure people have enough money saved to live with reasonable comfort when their pension kicks in.

"I've already flown 65,000 miles this year between North America, Australia and Europe and there are some commonalities [on pensions]. Probably the biggest commonality in every single country is talk about retirement security . . . how do we ensure that people's savings last as long as they're going to live.

“It is a big problem in terms of pension funding,” she says, not least at a time when market returns are a challenge.

Rapid shift

That challenge is set against a backdrop of the rapid shift from defined benefit pensions – where people got a pension that was a fixed amount of their salary without having to worry about it – to a defined contribution (DC) model “where you are now shifting on to literally millions of individuals the requirement to know what they need to save”.

And do they seem prepared for that?

“They’re not,” she says frankly, adding that it is not an easy skill even for investment professionals whose job is to manage returns and understand the markets.

First up, of course, is persuading people to start saving for retirement at all, and then making sure they set aside enough to have a reasonable chance of avoiding a sharp financial squeeze in their later years.

Grace says people need to be looking at saving 10-15 per cent of their gross income, “and we would say it probably needs to be the upper end of that”.

And you’re asking people to plan and invest for something that could be up to 40 years away and which is competing with spending options where the return is far more immediate.

“We need to figure out how do we help the new employee, who is 21 years old, who is looking at it and saying ‘what I really want right now is I want a Starbucks latte. I don’t want to put that, you know, couple of dollars into my retirement account’.”

So how do you do that? Companies like Aon are increasingly turning to psychologists to fine-tune the message on the need to save and to start early – aware that they have an average attention span of around eight seconds to grab people’s attention.

“How you get people engaged now is different on a whole number of factors,” says Grace. “For example, women will tend to get more engaged in that conversation if you frame it in [terms of] you don’t want to be a burden to (fill in the blank).

“So we’re trying to get much more focused, to say we have a short burst of attention span and we’re dealing with something that you can’t make scary. You can’t always say go and save for this enormous number because that can be overwhelming. It’s all about how do we start getting them to take a series of steps that are going to get them engaged.”

Tailoring the message to suit individuals or different groups of people is, says Grace, relatively new to pensions, though the concept has been around in other fields for a long time.

So, I ask, are the pension providers of the future going to be people, like Grace, who look at the markets, working cheek by jowl with psychologists, who are going to actually work hard on the messages and how you actually get to the trigger points for people to actually engage?

The future, it appears is here. Right before her meeting with The Irish Times, Grace tells me, she had been discussing just these issues with a pyschologist in the room next door.

For companies like Aon, the ambition is to construct an “institutional quality solution” that you would have had with defined benefit pension plans in the context of the new world of defined contribution retirement plans.

“So it’s going to be things like having embedded advice. You still want to have institutional quality investments, the ability to invest in every asset class, the ability to invest at scale,” says Grace. “So even if you may not have enough assets [individually] to get institutional pricing, you’re still getting institutional pricing because of the structure that you’re in.”

Getting people to start saving early is critical, Grace believes. And the secret to doing this, she believes is twofold. One is tax incentives, such as those that already exist in the Irish system, “the carrot that may get people over a little bit of the hump of starting to save”.

Auto-enrolment

“The other piece that, if you went back and looked at some of the more mature DC markets at what really statistically started to change a savings rate, it was the autos [auto-enrolment],” she says.

Auto-enrolment has been on the policy radar for governments in Ireland for about 15 years. It involves automatically signing working people up to a private pension plan unless they have already done so themselves.

The Government is currently reviewing its plans to introduce the scheme here following a consultation exercise. Barring yet more delays, it is scheduled to be introduced here in 2022, albeit with certain income and age limits.

Grace turns regularly to Australia as an example from which Ireland and other pension markets can learn. In terms of auto-enrolment, she is a fan of their experience of auto-escalation – starting with a lower level of contributions that rise over time – and auto defaults, a fallback investment plan, with embedded advice.

“Then you [will] start to see an ecosystem where you’re providing more of a strongly encouraged flight path for individuals,” she says.

Complicating the issue is the changing nature of careers. Up to recently, many people entered the workforce expecting to be with one, or maybe two employers, over their lifetime. Research conducted by Aon suggests that those entering the workforce today will work for, on average, 12 different employers.

Private pensions have traditionally been focused on the workplace, but who wants 12 different pensions. This, Grace says, is just one more argument in favour of pooled auto-enrolment schemes, even at the cost of reduced personal customisation of pension savings to cater to individual investment preferences, and better portability of pension savings.

Again, she turns to Australia which is looking at portability and has also enacted measures to consolidate myriad smaller, sometimes inactive, pension plans into larger entities, with better access to optimum asset allocation and pricing.

“At the end of the day, I think most individuals know that they need to do something [about pensions]. The thing is that what they’re trying to get a fix on mentally is so far in the future, do you focus on the immediate?

“We’ve been talking about pensions and retirement security for a really, really long time,” she says. “And if it was easy to solve, it would have been solved. But the challenge is that the more time goes on, what was not as easy to solve five years ago or 10 years ago becomes increasingly harder to solve.”