Lloyds Banking Group is to acquire Zurich’s UK workplace pensions and savings business in a deal including assets under administration of more than £15 billion.
The acquisition, which is due to partially close in the first quarter of 2018, is aligned with Lloyds Banking Group's growth strategy. This includes accelerating the development of its financial planning and retirement business, Scottish Widows, in order to enhance Lloyd's current proposition and help deliver a modern, flexible workplace savings platform.
The acquisition will enable Scottish Widows to broaden its participation in the large pension scheme sector, utilising Zurich’s master trust and group self-invested personal pension propositions. In addition, the Zurich Corporate Savings offering will enable Scottish Widows to provide a flexible investment capability to create bespoke investment plans and access assets not previously available through Scottish Widows.
As a result of the acquisition, Zurich will receive exclusive distribution rights for group life protection to certain corporate clients of Lloyds' commercial banking services.
Around 200 Zurich employees, including key management, relationship managers, technical experts and operations staff, are expected to transfer to Lloyds Banking Group under Transfer of Undertakings (Protection of Employment (Tupe)) regulations.
The first part of the acquisition is expected to close in the first quarter of 2018, with the subsequent completion and transfer of assets to follow after the required regulatory and legal approvals.
Antonio Lorenzo, director, insurance and wealth at Lloyds Banking Group and chief executive officer at Scottish Widows, said: “[This] announcement is a clear signal of Lloyds Banking Group’s commitment to the financial planning and retirement segment. The acquisition of Zurich Corporate Savings complements Scottish Widows’ growth to date and provides us with an ideal opportunity to accelerate our goal to become a market leader in this important sector for advisers and customers.
“Zurich Corporate Savings is highly regarded and has achieved good growth in assets under administration driven through strong relationships with large-scale corporate clients and their intermediaries. The greater proposition choice created through this acquisition will help us meet adviser and customer demands and ensure we continue to evolve our service proposition so that we are easy to do business with.”
Tulsi Naidu, chief executive officer at Zurich UK, added: “We see [this] announcement as a very positive step forward for our business. We are simplifying our organisation and focusing on markets where we have strong assets and can best serve our customers and distributors. Our UK life and savings strategy is simple; to establish market-leading positions in retail wealth, and retail and corporate protection, while growing our new corporate longevity and de-risking business.
“This new exclusive deal with Lloyds Banking Group broadens our corporate protection distribution footprint. To support our other ambitious growth plans, we are also investing in a new multi-million pound retail protection platform and enhancing the range of products on our retail wealth platform.”
Sharon Bellingham, head of provider relations at Hymans Robertson, said: “This is a fantastic opportunity for Scottish Widows to really make a mark on the master trust market. [It has] been very open about [its] ambitions, and the desire to launch a master trust, and this deal provides [it] with a ready-made option which will enable [it] to get to market relatively quickly and efficiently.
“Zurich’s master trust is already established and provides an element of scale and a track record, although clearly Scottish Widows will want to put [its] own stamp on it. To date, the Zurich master trust hasn’t quite gained the same level of traction in the market as some of its peers, largely because parts of the proposition were not quite as robust as others in what is a highly competitive market. With the value of hindsight, it’s clear to now see why there was that hesitancy from Zurich to spend and develop. I’d expect that in time the proposition will benefit from the Scottish Widows ‘Driving Pensions Value’ programme and the initiatives and investment that we’re seeing as part of that.”
Laith Khalaf, senior analyst at Hargreaves Lansdown, added: “This move underlines Lloyds’ commitment to the pensions market, scotching rumours that have circulated for years that the bank is looking to sell off the Scottish Widows franchise. This part of the business adds some diversification to the Lloyds stable without the risks inherent in the investment banking activities practiced by its peers. By comparison the workplace pensions business is sleepy, steady and sticky. The defined contribution market is also growing, thanks to the government’s automatic-enrolment programme which is forcing employers and employees to pay money into workplace pensions.
“However a charge cap on these schemes illustrates the wider fee pressure on fund management, which means there is strength in numbers for the likes of Scottish Widows and Zurich. This is compounded by the increasing regulation faced by financial services firms. We have already seen Standard Life and Aberdeen tie up to battle these headwinds together, no doubt that deal raised an eyebrow or two across the Edinburgh streets at Scottish Widows [headquarters].”
