As 2024 draws to a close it is clear that consolidation has been a dominant theme for the DC pensions market this year — not just among providers but also for the sector’s consultancy firms.
This trend was exemplified by the news last month that US broker AJ Gallagher had snapped up pension consulting firm Redington for an undisclosed sum. Gallagher is clearly expanding its footprint in the UK DC market, with the deal following its purchase of pensions and employee benefits consultancy Buck in 2023.
Talking to Corporate Adviser, David Piltz, CEO of Gallagher’s benefits and HR consultancy division in the UK, and Redington’s CEO Sylvia Pozezanac explained the thinking behind this latest acquisition, and how they see the consultancy sector shaping up in a rapidly changing DC world.
A Strategic Fit
Piltz pointed out that this is a significant acquisition, with Redington being four or five times the size of Buck’s UK arm. But he says as with Buck there is a good strategic fit between the two organisations.
“Redington is renowned as a first-class investment consulting firm, so we were excited about the opportunity to talk to them about how we could work together,” he said.
Piltz highlights how this has enabled Gallagher to expand its specialist investment advice capabilities. In contrast it has a strong pension administration team, a communications division and actuarial, secretarial and governance practice — partly thanks to its acquisition of Buck. Redington doesn’t have those specific skillsets so can also benefit from being part of this larger combined company.
Pozezanac agrees the two firms are a good fit, and stressed the cultural similarities between the two organisations. She points out that Redington has seen significant growth since it launched 18 years ago,
and the deal was a logical next step. “We’ve grown, diversified and digitised, so the next phase of our journey was to continue to grow and to globalise. With Gallagher we’ve found the right partner to help deliver on these aspirations.”
The merger is set to expand Gallagher’s service offering in the UK, while allowing Redington to grow its international presence – initially targeting the US and Canada after the UK. Pozezanac also points out that
while Redington has historically focused on the domestic UK market, many of its clients have global operations. This deal provides the resources for them to be able to offer a broader range of services.
Growth over job cuts
Mergers and acquisitions often raise concerns about job losses. However Pozezanac emphasised that this deal is focused on growth, not cost-cutting. “Gallagher gives us this access to these global markets, and it’s a great opportunity to add value to clients,” she said.
Piltz echoed this sentiment. “At Gallagher we are frequently involved in M&A activity. We take our time, and are very thoughtful and delivered when it comes to the integration of teams.”
He points out Gallagher is a large organisation that continues to expand, so there are always opportunities for “high calibre talent”.
Piltz adds that this merger has been driven by “future opportunities” not a need to drive cost-efficiencies. “Quite frankly both organisations are recruiting at almost every level and I see that recruitment
drive continuing.”
Provider consolidation
In the short term Piltz might not be predicting job losses, but how will more significant consolidation and contraction in the provider space impact consultancies firms?
It is a question thrown into sharp relief by the Chancellor Rachel Reeves’ recent announcement that she wants to set a minimum size for providers in the DC workplace market, potentially at £25bn. Having fewer, larger DC ‘megafunds’ wil have significant implications for the sector as a whole?
Piltz says that this shows that the push for pension consolidation is gaining momentum. “The previous government expressed the same desire for pension funds to play a key role in unlocking investment in infrastructure and private business. Now, the reforms set to be introduced through the Pension Schemes Bill next year takes this ambition further.”
Pozezanac said there was a critical need for balance, to ensure consolidation doesn’t lead to excessive risks in the market. “Merging the UK’s Local Government Pension Scheme (LGPS) and consolidating DC schemes into megafunds could free up money for public services and drive the UK’s economic growth.” Greater investment into productive finance and private markets could also boost long-term returns for members. But if pensions funds become “overly concentrated” in just a few larger investments this could leave them vulnerable to significant risk, she says.
Piltz adds: “Equally, once schemes reach a critical size, the benefits of further consolidation start to diminish. Instead, fostering a competitive framework where investments vie for their place in independent pension portfolios could enhance due diligence, encourage price competition, and reduce the risk of overexposure to underperforming investments.”
The future of advisers
But as well as the potential concentration of investment risks for members, do megafunds pose a challenge for the wider consultancy sector over the longer term? If the UK continues to follow the steep path towards consolidation outlined by the Chancellor, what will it mean for the advisory sector.
Piltz and Pozezanac do not see demand for advice disappearing any time soon. Pozezanac says that while the DC and DB pensions market are clearly evolving at pace, she predicts that the role of the adviser and the consultant will become more important, not less.
“Capital markets and financial markets are getting more and more sophisticated, and clients will need expert advice to navigate these complexities and source the most suitable products and services.
“The underlying need for investment expertise remains, regardless of changes to savings vehicles or legal frameworks.”
Piltz is in complete agreement on this point — and adds that the shift from DB to DC and the growth of sustainability and ESG considerations will drive demand for investment advice and consultancy services. “I’m very confident that in five or 10 years we’ll still be advising, albeit potentially on different products and different solutions. The fundamental need for expert high quality investment advice, backed up by leading manager research and access to modelling tools all remain.”
Building partnerships and driving consolidation in the consultancy space can ensure that firms like Gallagher are well-placed to deliver these services, he added.
Gallagher has now effectively completed the merger with Buck, and this brand has been retired. And he is clear that Redington is unlikely to be its last acquisition in the UK DC space.
Piltz says that Gallagher has “big growth aspirations” but emphasises that future M&A actively will be carefully considered. “We are very selective in the partners we want to work with. It’s not about deals for the sake of it. We want to focus on opportunities that expand our expertise and help define who we are in the market. This is why the deal with Redington was so attractive.”