Scottish Friendly, the historic Glasgow mutual that has hit the pensions big league

Many firms went out of business last century or were swallowed up in mergers, leaving only their names etched onto the buildings still standing in the city centre – like the red sandstone Liverpool & London & Globe Insurance building on St Vincent Street.

One of the few survivors is Scottish Friendly, which traces its roots to the City of Glasgow Friendly Society founded in 1862. At one time, the business had branches across Scotland - even as far as Orkney – and in parts of England. By the time the Scottish Friendly name was created in 1973, the network had disappeared.

Scottish Friendly is one of a species of member-owned mutuals across the UK specialising in insurance, savings and pensions and health insurance, including names like Liverpool Victoria, Sheffield Mutual and BHSF, a Birmingham workplace insurer. Since 1994, the business has been headquartered in Glasgow’s Blythswood Square and is perhaps best known for its stocks and shares individual savings account (ISA), including a “Junior ISA” aimed at children.

So far, so unremarkable. Yet in April, Scottish Friendly quietly made a move that catapulted the business into the pensions big league. It announced the acquisition of a portfolio of pension and annuity assets from Fidelity International, the US-based fund manager, valued at just over £2 billion.

Overnight, the small Glasgow mutual not only doubled the size of its existing pensions business but, on top of £300 million in ISA assets under management (AUM) plus a life insurance business, it now boasts total AUM of over £6.3bn. Stephen McGee, Scottish Friendly’s chief executive, agrees the Fidelity deal has been “transformational”.

“Acquisitions are part of our primary strategy, which is to grow our own-brand products organically. We want to do more for our members under our own brand products but, recognising the benefits of scale, we’re looking for acquisitions that give us products or capability that we think will help support our primary strategy, or give us a sufficient scale and acceptable level of ‘integration pain’,” he explains.

The Fidelity acquisition, involving so-called Section 32 pensions, is the fourth in a series made since 2007 when Scottish Friendly bought Scottish Legal Life, followed by Marine and General Assurance in 2016, and Canada Life’s life assurance portfolio in 2019. The latest move is part of a trend under which companies and financial institutions have been seeking to offload from their balance sheets the liabilities associated with employee pension payouts. This month, Legal & General agreed to take over £4.6bn in pension liabilities from automaker Ford’s UK business.

One part of this market, called bulk purchase annuities (BPA), has been growing fast: a report in August by consultancy Oxera showed a more than doubling in BPA deals ​from 124​ in 2020 to 298 ​in 2024.

Under its deal with Fidelity, Scottish Friendly has acquired over 70 pension schemes that the US firm had accumulated covering 40,000 policyholders. The Glasgow mutual will now integrate those into its technology platform.

This doesn’t mean that Scottish Friendly will now be in the business either of pension provision or offering investment advice. Instead, the idea is two-fold. First, to offer the pension administration services needed for pension-holders to see their pensions out to the point of payout.

“What we’re trying to do is build a proposition that is fully digitally enabled, has some tools and education alongside that, and allows our customers to manage their pensions that are already with us through the rest of the stages of their life. We can, for example, facilitate the purchase of an annuity,” explains McGee, who earlier in his career at Lloyds Banking Group led a project that saw the group’s Scottish Widows pensions unit enter the BPA market.

The acquisition gives Scottish Friendly “probably about 70 per cent of what we need to build, and then we’ll look to build the rest”, he says. It also adds significantly to the number of policyholders to which it has access from the previous three acquisitions, while creating the scale needed to manage this often lower-margin pension business more efficiently than competitors.

The second part of the proposition is to offer the former Fidelity policy-holders access to Scottish Friendly’s existing products, such as ISAs and over-50s life insurance. “We’re hoping to engage with these customers and retain them well beyond retirement age. None of that was baked into the acquisition, but we do think that is upside potential,” McGee says.

While Scottish Friendly has growth, its relatively small size is an asset, explains McGee, who also spent seven years in Edinburgh as chief financial officer of the UK unit of Dutch asset manager Aegon. “We are actually operating at the levels that all the big insurers probably don’t see there’s enough value for them. We’re looking at the level below that, where there’s still enough money for people to invest, but they’re not going to go out and be able to afford to pay for financial advice,” he says.

Such customers are the ones that have driven the popularity of Scottish Friendly’s ISAs, which were largely behind 30 per cent year-on-year growth in sales of its own-brand products in its 2024 financial year.

McGee says that a recent advertising campaign on buses in Cambridge signals start of expansion in the south of England and London. “We think that stereotype of ‘Scottish’ resonates quite well, as does ‘friendly’,” he says. “So we are looking to expand our geographical reach - but only where we see the return on investment.”