Avida Blog

Pension funds and their service suppliers must soon decide what they want their future business models to look like.

It's coming close to a year now since life for all of us was thrown into turmoil. We have all been forced into massive behavioural changes. From an organisational perspective the most visible and possibly most significant of these has involved our people having to flip from office to homeworking. This has involved a huge adjustment for both individuals and those managing them within teams. It has, for many, also involved a considerable degree of domestic upheaval.

I have devoted a significant part of my career advocating strong governance in the financial sector.

So recently, I decided to take a step back and reflect on what effective governance is all about. It is described in Wikipedia as “comprising all of the processes of governing – whether undertaken by the government of a state, by a market or by a network – over a social system (family, tribe, formal or informal organisation, a territory or across territories) and whether through the laws, norms, power or language of an organised society.”

I’m from The Netherlands, and whilst I live and work in the UK I continue to follow the fortunes (!) of the Dutch football team. Therefore, I was sad to hear of the injury to our current star player, Virgil van Dijk last week.

Whilst the chorus of sympathy that followed was understandable, I found myself perplexed at the cries of “disaster for Liverpool” in the media, as if this professional organisation would not have considered the possibility of such an occurrence and have put a contingency plan in place.

A major talking point, at least for some, in the UK pension fund industry right now is the imminent merger of two of its leading independent consulting houses, Aon and Willis Towers Watson. I say “at least for some” because given the scale of this merger, it strikes us as odd that it is receiving so little broad coverage. It's as if it doesn't matter that much. This is not the feedback we are receiving, as evidenced by some of the concerns expressed by a group of their pension fund clients at a recent Avida International roundtable, which we have grouped in the following way.

Five years ago almost to the day a good friend was caught up in the merger of two global asset management organisations, let’s call them AM1 and AM2.  A key and valued employee at AM1, she was offered an identical role at the merged entity, which it was clear would be dominated by AM2. Much to my surprise, she turned down the offer. The rationale for her decision was interesting - “If I had wanted to pursue a career at AM2 I would have accepted a role that had been offered to me there three years ago.”

In the good old days when people hosted what used to be known as dinner parties there was one topic of conversation guaranteed to bring silence to the room – pensions! Regarded as a subject that only actuaries can get excited about, most people still perceive the pensions industry as trundling along year after year, doing what it does i.e. paying pensions to old, retired people, without ever experiencing much in the way of change.

But those of us who have spent a large part of our lifetime in the pensions industry understand how wrong this perception is. As if the normal uncertainties presented by the likes of fluctuating asset values, longevity and shifting regulatory sands aren’t enough to keep us excited, there is COVID and now a huge industry merger to contend with. The latter is especially relevant for pension funds who are clients of either Aon or Willis Towers Watson, the subjects of this merger, a topic we shall discuss with a cross section of them at an upcoming roundtable.

Like all of you I hate spam. So, recently I decided to take action to reduce the amount of it that comes my way. My plan was to attack my inbox, to unsubscribe to all those organisations I don’t ever recall asking to receive “unmissable deals” from.

Before doing so I took the predictable detour, putting this action off for a few weeks because it was going to be too much trouble and I had loads of other more important tasks to attend to. So, amongst other things I walked the dog a bit more than usual! Finally, I knuckled down and carried through on this promise to myself. What a joy now to be receiving so much less junk email and to feel in control of my inbox. And it turns out the process wasn’t nearly as painful as I feared it might be.

Synergy is a favourite word amongst those who practice 'corporatespeak' in relation to mergers – Synergy, or rather its plural form, Synergies.

Normally presented as a positive, it is anything but should you be on the receiving end of it. It’s all about (although not exclusively so) job cuts and re-evaluating the commercial outlook for joint businesses.

This was an issue my Avida International colleagues and I discussed with a number of the larger pension funds. We found some of the feedback particularly interesting. There was consensus on the view that in an industry dominated by the requirements of insurance companies, cost pressures are significant and increasing. So potential synergies will be relentlessly sought. In that context, some of the main observations from our discussions were:

What would you get if you merged every independent advisory organisation into one body? A huge increase in industry systemic risk.

While I have a keen sense of humour, this is not intended as a joke.

The maturing UK pension fund industry is currently being shunted in this direction with the proposed merger of industry advisory giants AON and Willis Towers Watson. Two of the biggest consultants becoming one and the consequent shrinking of advice options for funds, has consequences.

Ever since this announcement my Avida International colleagues and I have been exploring the potential implications with a number of the larger pension funds. Some of the feedback provides interesting food for thought.