I had better be careful here, my partner Stella is Group Pensions Director at Lloyds Banking Group and I am a Zurich pensioner and ex- head of sales of the Zurich workplace proposition. I have -as they say – skin in this marriage.
Yesterday Lloyds Banking Group announced they were purchasing Zurich’s corporate pension book (with £19bn of funds). 200 staff will TUPE from Zurich to Lloyds and as part of the deal Zurich will get some protection business passed its way from Lloyds.
Zurich corporate pensions – born in a conflict zone
Zurich corporate pensions book is now a part of a life company set up in 2004 called Zurich Assurance.
Zurich assurance is itself a reluctant love-child of Eagle Star, Allied Dunbar. It’s genesis was in a trade war over who owned the pension brand – with Threadneedle Asset Management the cuckoo in the love-nest. The entity has nothing of these ugly sisters, it was set up with minimal reserving as a bright blue unit-linked platform from which corporate pensions could be purchased. It has done very well.
The back-story
I was in a small-team, well remembered for the remarkable Jon Poll, who saved Eagle Star’s corporate pension proposition from extinction and created a new proposition using the hi-portfolio administration system (Caroline Moore) and the newly created Profund Open record keeping system. This system is now used by NOW pensions and owned by JLT when Profund went bust in 2004. We were wise enough to ensure that in this eventuality, the code for their version of the software stayed with us.
It seems odd that what is now reported to be a £19bn business, only saw the light of day because when Zurich took over the shooting match from BAT, the big beasts of Allied Dunbar needed to put Threadneedle in its place. Emma Douglas and Mark Stanley, who were then running the Threadneedle DC proposition were thwarted in their ambitions by Sandy Leitch who could not cede to Threadneedle big beast Simon Davies.
Corporate decision making usually comes down to politics , personality and pride and that’s exactly how Zurich Assurance was created. Whatever the legal entity that has been sold by Zurich Insurance to Lloyds Banking Group, it is considerably more valuable than anyone ever considered it could be. Back then, corporate pensions played second fiddle to worksite marketing, auto-enrolment was not even a twinkle in the eye and the Allied Dunbar direct Salesforce were lobbying Government to lift the stakeholder cap so that they could be paid some initial commission on pension sales.
How a neglected child grew up to great things
The DC pension landscape at the turn of the millennium was still dominated by commission , with-profits, opacity and greed. We took the decision to head for the high-ground and at that time there were only a handful of actuarial consultancies acting in a transparent way. Bacon and Woodrow, Mercer and Watsons charged fees to set up AVCs and other “money purchase” plans and first Eagle Star and then Zurich were able to compete more because they did not present a commission proposition than because there was any great confidence in their capabilities.
But a replacement was needed for the Equitable Life and Eagle Star had stepped into the breach. Pioneering straight through processing of contributions, it had become the first DC provider to have used a CSV upload, reconciled by the client and a direct debit to pull contributions through. This simple methodology was to revolutionise contribution collection in the UK. It effectively outsourced error reconciliation back to the client. The savings this created the profitability for further investment in the business.
It wasn’t till around 2005 that anyone at the top of Zurich even noticed this fast-growing business. As with most success stories, it happened because of luck, insight and a lack of interference from the top. As soon as the potential for this little business unit was discovered I was booted out, Poll followed a few months later and Zurich became the corporate behemoth it is today.
Scottish Widows
You tend to characterise your relationship with huge entities like Widows through some personal anecdote. Mine relates to a time when we were negotiating for Scottish Widows to be promoted on http://www.pensionplaypen.com. I and a colleague were ushered through the hallowed halls of HO in Edinburgh up a broad staircase at every turn of which were corporate slogans advertising Scottish Widows’ intention to treat customers fairly.
When we were sat down in a magnificent boardroom we were told in no uncertain terms that we were not to offer on our site any better terms than their existing customers already had. We were asked to quote no terms at all to employers with Scottish Widows products! We looked at that statement “we treat all our customers fairly” and gasped!
Until recently, Scottish Widows were an organisation that had lost its moral compass, its pride in itself and any sense of independent direction. It is greatly to its credit that it has soldiered on and made a recovery. It is now a credible insurer angling for the affections of IFAs against local rivals Standard Life and Royal London. While Zurich took the decision to court the actuarial consultancies, Widows had stuck with the corporate IFAs and the larger retail IFAs and I would be surprised if Scottish Widows and Zurich often compete.
Marriage prospects
The bride and groom have very different pedigrees and appeal to different sets of friends. But I suspect they will get on alright, because their cultures are now aligned.
I left Zurich because I had no place in the corporatisation of what we had started. I am not the kind of guy who hosts tables at awards ceremonies, shakes hands on tradeshow stands or spends most of my working day in internal meetings. We parted company on good(ish) terms, I got a good pension and a nice boat, they got a business which they could grow,
Scottish Widows, owned by Lloyds Banking Group have really done nothing in the corporate space but waste money. Their disastrous forays into “portals” (my money works) the sale of SWIP to Aberdeen, the failed attempt to win 10,000 new schemes through auto-enrolment, have seen them fall down the league table of credible providers of corporate pensions.
But relative to the propositions of Barclays Life and HSBC Life, Scottish Widows is the last player standing.
Scottish Widows appear to have sensible management (not before time) and they have gone back to their roots with their bulk annuity business. As with Aviva and Friends, and Aegon and BlackRock, they will now have to promote parallel propositions under single ownership. Will these merge or be maintained separately -time and the market will tell.
Zurich customers should have nothing to fear from the change of ownership. Scottish Widows are unlikely to destroy £19bn of value (though crazier things have happened). Scottish Widows will keep the Zurich product as a flagship- if they have any sense. It may be rebranded, but I very much doubt there will be much interference.
I don’t think the Zurich product has ever had much appeal to IFAs, it paid no commission and it never tried to adapt itself for the SME market.
The big question is not about accumulation, but about the capacity to keep funds on the respective platforms into the spending (decumulation) phase. I am far from clear what the strategy for the two propositions will be going forward, but this is where synergies may be found that can work for both Widows and Zurich. A jointly manufactured decumulation proposition for the billions of pounds that will be liberated as the policyholders mature, is the key opportunity (and threat) for Lloyds Banking Group.
It is on how successfully Lloyds can marry and maintain the marriage through retirement, that the long-term success of this acquisition will be judged.
