Scale and scalability- why L & G is the cuckoo in the Nest.

Not for long!

If you are work for Barclays, Marks & Spencer, Sainsburys , the Co-op or Asda and you are not already in a company pension scheme, you will most likely find yourself getting a lot of letters , taking a paycut and joining a pension at some point over the next three of four months.

If I was to show you a cloud full of words about the Government’s pension reforms, as likely as not you’d pick on “NEST”, but if you thought that what you were about to get as a pension had something to do with NEST you’d be wrong. You are not joining a pension scheme called NEST, not are you being enrolled at the “NEST contribution rates” – infact NEST has as much to do with what you are about to become a part of as NOW or blue-sky or the Peoples Pension. None of these pension schemes will have anything to do with it.

So who is going to manage your pension contributions? Who are you going to rely on for your new pension? Well you may be surprised to know that all of these mega-employees have chosen the  insurer Legal & General to manage the pension saving process and their sister company, Legal and General Investment Management to invest your money.

Very quietly, Legal & General have made themselves the go-to provider  for companies with big workforces and it’s interesting to hear why. I’ve spoken to some of the senior employees in the companies I mention and the feedback I am getting is that Legal & General are straight-talking, realistic and they do what they say they are going to. They do not make extravagant claims for what they do and there are no doubt other companies with more glamorous propositions, but it is Legal & General who are the safe pair of hands.

I am pleased for them. I have known Adrian Boulding, their crazy strategy guy for years. He is one of the people who I’d want at any party – knowledgeable, funny and optimistic, more than anyone else in insurance, he’s helped to shape the policy agenda in the right direction. I also know Tony Filbin, their Head of Workplace Savings. Tony is modest about his and Legal & General’s achievments, but he should be credited with much of the sensible decision making that ensured that his company withdrew from their early plans to compete with payroll providers and concentrated on what insurers do well these days, manage contributions in and pensions out of long-term savings plans.

As we watch the market form, it is becoming clear that L & G have won the marketing war for the first wave of big schemes. They are not rivalling NEST, sadly NEST is not even on the first page of competitors. NEST has been so hamstrung that it must sit in the pit lane as the race starts. Whether NEST will probably limp into the race as smaller companies who run out of time, energy or interest default their staff into it, but this will be a long and tedious journey for it.

I won’t rehearse the sorry tale of tax-payers investment  to set NEST up (press here for the grim details).Nor will I further lament the concessions made to the Association of British Insurers to hobble it. As the New Dawn fades, daylight exposes a pension landscape where NEST’s practical impression is negligible. NEST is a pensions white-elephant and at £300m, the most expensive animal in the zoo.

We must now wait and see whether Legal and General and other insurers such as Standard Life can digest the new business coming their way and whether, so rich are these feeding grounds, they need to return to the market for smaller schemes. My suspicion is that there is plenty of capacity with the insurers who have scale and scalability and , despite all the noise to the contrary, they will be the big winners as we see 10m of our workforce find their way into these new workplace savings plans.

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