PensionBee’s competitors may have to buy the platform to stop it dominating the defined contribution market, Jefferies analysts have suggested.
Ahead of a PensionBee trading update due on July 21, which will cover its six months to June 30, Jefferies analysts initiated coverage on the platform, giving the stock a ‘buy’ rating.
The analysts wrote that PensionBee is filling a gap in services available to consumers. They observed that DC pension assets have grown at a compound annual growth rate of 30 per cent for 10 years, and are expected to continue growing until 2065.
“If it remains independent, it could take a significant share of the UK DC pension market,” they wrote, valuing the unconsolidated market at £1tn. “To beat them, competitors might have to buy them.”
Jefferies noted that the average pension pot on the PensionBee platform is £20,000, after consolidation.
Pre-consolidation, the average pot is worth around £5,000, which they said made individual accounts unattractive to most pension providers.
In PensionBee’s favour, however, it was observed that the average person has 11 jobs over their working life, generating many small pots. These are growing, providing an opportunity to a platform that can efficiently consolidate them.
“Many platforms and pension providers offer to consolidate preserved workplace pensions,” Jefferies said, adding that only PensionBee prioritises this form of consolidation.
“Market participants large and small are discouraged by the need for high-touch customer service in the early stages; old technology, which makes it hard to automate many tasks; conflicts with existing distribution channels via employers and advisers; and the large number of small pots.”
Jefferies forecast PensionBee’s full-year pre-tax losses to narrow from £25mn in 2021 to £21.3mn this year, eventually reaching profits of £4.3mn in 2024.
Alex Janiaud is deputy editor at FTAdviser's sister publication Pensions Expert
