Senior citizens and coins in glass jars are some of the common themes you find when you look up ‘pensions’ on an image search engine. But in recent years the industry has been catching the attention of fintechs.
In June, Plum announced it was expanding into retirement savings with the launch of a self-invested personal pension, two months after PensionBee floated on the London Stock Exchange.
Both providers, and others such as Moneybox and Penfold, to name a few, enable savers to consolidate pension pots.
Steve Webb, a partner at consultancy LCP, says: “There is no doubt that there is a big opportunity here. In addition to the historic defined contribution pots which people have accumulated, automatic enrolment means that another 10m people are now saving into a workplace pension, and this is overwhelmingly into a DC pot.
“Coupled with job moves and the lack of government action on small ‘stranded’ pots means more and more people will start to accrue multiple pots and their instinct will be to consolidate.”
But, as NextWealth’s managing director Heather Hopkins observes, building a consumer business in a highly regulated environment is expensive.
Indeed, according to PensionBee’s prospectus, published before its admission to trade on the London Stock Exchange, the provider has incurred net losses since inception.
In 2019 and 2020 PensionBee reported operating losses of £7m and £13m respectively, resulting from the provider’s investments in, and expenditures relating to, expanding its customer base and developing its technology platform.
The circumstances are reminiscent of online investment manager Nutmeg, which in April said the business was moving “closer to profitability” before JPMorgan Chase announced in June that it had agreed to acquire the digital wealth manager.
As Webb notes: “Set-up costs have to be incurred in full before revenue starts to come on stream. This is why new entrants expect to lose money in the early years.
“As assets under management or administration rise, so charge revenue will rise. But that is a gradual process, whereas fixed set-up costs of IT etc have to be incurred on day one.”
Dashboards: an opportunity or threat to online providers?
The approach of online providers in enabling savers to consolidate pots is similar to the anticipated pensions dashboards. According to the programme’s principal Chris Curry, dashboards will “enable individuals to access their pensions information online, securely and all in one place”.
Indeed, PensionBee notes in its prospectus that “dashboards, once established, will help consumers find their lost pensions and PensionBee expects digital services such as its own to thrive in an environment of increased transparency”.
Webb likewise says the dashboard presents an opportunity, as people will be reunited with lost pots and prompted to think about their scattered ones.
And despite high set-up costs, NextWealth’s Hopkins remarks that “for those that get it right, the payoff will be huge. Consumers don't tend to change pension providers often, so the business is sticky”.
This tendency not to switch is unlikely to come as a surprise, amid a general lack of engagement among savers.