Alliance timetable

April: Legal & General provides Barclays clients with stakeholder pension product This summer: Barclays funds and life arms stops taking new business. Unit trusts transferred to L&G Later in 2001: Barclays offers full range of L&G products Within 18 months: L&G takes on admin of Barclays Funds policies Plans subject to regulatory consent

From April, all employers with more than five staff will be obliged to arrange a pension scheme for their workers.

Experience from other countries, especially Australia and the US, shows that life insurance and other services are often sold alongside a employer-run pensions policy, through a process known in the trade as 'workplace marketing'.

"What you find is employers offering staff a whole package of things," the Barclays spokeswoman said.

Tuesday's statement said: "Workplace marketing... is expected to be one of the fastest growing markets in the UK."

'Play to strengths'

Barclays denied any disatisfaction over its own policies had prompted the alliance with Legal & General.

"What we have are very good products," the bank spokeswoman said. "If we want to expand in the market, we need to bring in expertise in some areas.

"With Legal & General, we will bring in a [product] manufacturing capability in these areas."

Mr Stewart, said: "You have to specialise in what you are good at."

City speculation

Rumours about an alliance between Barclays and Legal & General have been making their rounds in the City for some time.

While the idea of a combined bank and life assurance firm, a so called 'bancassurance' company, is widely accepted on the Continent, where firms such as Fortis provide both services, the idea has attracted suspicion in the UK.

NatWest attempted two years ago to buy Legal & General, only to become targeted itself by Bank of Scotland for takeover.

BoS's chief executive, Peter Burt, famously condemned the NatWest/L&G merger plan saying: "You don't have to own the cow to sell milk."

Lloyds, the UK's third biggest bank, last year bought life and pensions group Scottish Widows to position itself as a bancassurance firm.

Abbey National in September bought Scottish Provident to increase its exposure to the life and pensions market.

Market reaction

Shares in Barclays stood 13p higher at 2106p in lunchtime trade in London.

Shares in Legal & General were 3.75p lower at 172.25p.