The Pension Scheme members affected work or have worked for Lloyds bank or a related company and are currently in the Lloyds Bank DC pension scheme. This is the only way I can make sense of “new pension provider” Scottish Widows doing the investment for the first time. The FT have been given the story

Lloyds Banking Group is planning to move £6bn of workplace retirement savings from Willis Towers Watson to Scottish Widows, as the bank’s in-house pension provider carries out a major overhaul of its offerings. The bank has written to more than 100,000 of its pension scheme members to tell them about the changes. The consultation closes in August and the switch is expected to complete in the second quarter of next year.

Willis Towers Watson does not of course invest money, it advises on investment and it does the administration for LBG’s DC Trust.  The Trustees of LBG’s pension schemes do the investment and take advice on which funds to place the money.  Scottish Widows will now be taking over the management of staff’s money by taking it into its master trust, the master trust will do the lot. Deciding not to manage the DC trust “in-house” and contracting the job out to a multi-employer DC scheme that you happen to own does not sound like “moving the money in-house” to me. Scottish Widows has an investment platform for other people’s funds to sit on but they don’t manage – any more than Willis Towers Watson (WTW)

It’s a good thing that something’s moving the master trust along as things are not looking good for the master trust right now. Here’s the FT

The move would more than double the assets in Scottish Widows’ “master trust scheme”, a pooled arrangement where a pension provider manages money on behalf of multiple companies. The master trust differs from contract-based workplace schemes, which are agreements between the pension provider and each employee.

There is a certain amount of commercial sense in this. LBG’s DC staff scheme is never going to get to scale , though at £6bn it’s as big as any single employer DC scheme. So rather than soldiering on, it is picking to work with a master trust, itself aiming to get to £10bn by the end of the decade so it can have a go at £25bn in ten years (2035).

That it’s choosing to use the moribund Scottish Widows master trust that no one chooses, is either a “sign of confidence” or a “sign of desperation”. The members of the pension scheme will hope its the former and not the latter but either way, their money is being used for commercial purposes and Lloyds will have to argue in the forthcoming consultation that Scottish Widows is as good as the likes of L&G and People’s and Nest and Lifestyle (WTW) , all of whom are already “mega-funds”.

I suspect that a critical eye will be turned on the Scottish Widows master trust that started life as the Zurich master trust, got bought by Lloyds for Scottish Widows and since purchase has failed to deliver either in performance or in attraction to consultants, employers or to those running other master trusts and looking for better homes as consolidation takes hold.

Lloyds have clearly briefed the FT about Scottish Widows at length

Its multi-employer master trust manages £3.7bn. Lloyds said transferring its staff’s defined contribution pension to its own scheme would bring it in line with peers such as Aviva, Standard Life and Legal and General, which also provide in-house pension services to employees.

Doing the sums, it may just take Scottish Widows Master Trust to £10bn but it will have bought its way there and shown very little aptitude on its own. There are better buys on the market and distinguishing itself by being part of a rehash of investment strategy that sees it investing less in the UK and more in the USA will be difficult to get them back in our good books – especially the Government’s.

The planned changes come after Scottish Widows last month refused to sign a pledge by 17 pension providers to invest at least 5 per cent of their default funds in UK private market assets by 2030. It was the only big UK pension fund manager not to do so.

Scottish Widows has clearly leaked the story to the FT in the hope of getting some momentum but the FT has rightly pointed to the failure of Scottish Widows Master Trust to deliver to its critically near retirement members. Well done McDougall and Dunkley.

Scottish Widows is the UK’s second-largest pension provider. Its balanced portfolio for savers five years from retirement delivered annualised returns of 4 per cent over the past five years — compared with a 5 per cent average in that category across 24 master trusts ranked by Corporate Adviser earlier this year.

Let’s hope that more than 100,000 LBG DC members who currently do not pay for their pension management continue to get this subsidy in the Scottish Widows Master Trust. It won’t help Scottish Widows or Lloyds if the subsidy continues but I can’t see Lloyds unions standing for a raise in charges to help the master trust out.