Half way through February it is already clear we are going to see a wide range of digital personal services launches in 2016. Some of these will seriously challenge traditional thinking on how to help consumers plan for their financial needs.
A great example is the new Pension Bee pension consolidation service set up by former Goldman Sachs analyst Romi Savova. Born out of her own frustration when trying to transfer benefits from a previous employer’s scheme, Pension Bee aims to help savers in their thirties and forties track down the various pensions they have contributed to and consolidate them before encouraging them to start making more contributions.
The customer provides as much information as they have on each pension or each employment via an online form and electronically signs a letter of authority. Pension Bee maintains a growing database of defined contribution schemes operated by various employers, which will help it identify who the pension might be with. As details of each pension are entered, an online summary of plans begins to be created.
The service says it will provide an update on the progress after five days, although Savova expects the entire process of gathering data from different pension providers and presenting a summary for the user to take around 25 days. This strikes me as optimistic.
Once responses have been received, the system identifies Pension Bee’s projection of what the total fees payable under the existing arrangements might be and provides a comparison of the charges applicable if the funds were transferred to its own pension product provided by Blackrock and State Street.
This offers three fund options: a Simple Plan (with a static asset allocation) priced at 0.5 per cent for the product wrapper and investment management, a Value Plan (using smart beta) for 0.6 per cent, and a Premium Plan (using target date funds) for 0.7 per cent. The latter uses Blackrock’s LifePath target date fund.
The whole process is delivered on an execution-only basis, with the company being very clear it does not give advice. Where a contract has a guaranteed annuity rate or other benefits associated with older contracts, Pension Bee will not include it in the list of contracts for price comparison. The pension finding service is already live, with the personal pension wrapper expected to launch shortly.
The forthcoming pension dashboard initiative currently being championed by the Cabinet Office could potentially remove the need for most, if not all, Pensions Bee’s tracing service. Conversely, though, it should make it far easier for it to produce the cost comparison reports. In this context, Pension Bee may be an example of the shape of things to come when the pension dashboard finally arrives.
Imagine the pension equivalent of Go Compare’s current account comparison allowing consumers to download a file with their pensions in a standard format and generate a report identifying which would give them the lowest charges. As I have highlighted before, the Government has already passed legislation resulting in all banks supporting current account comparison. Only a statutory instrument is needed to extend these obligations to pension providers.
Savova’s message that pension saving does not have to be complic-ated could go down very well with consumers. Having seen her present at Boring Money’s recent Digital Investor conference I can visualise her on breakfast television making a convincing argument for this approach.
When challenged on the lack of risk profiling or selecting assets aligned with individual customer needs, Savova points to extensive research identifying that, over a 30-year time horizon, as long as people are invested in a diversified basket of assets, returns are consistent. While stressing all the funds in Pension Bee’s contract meet such criteria, she recognises past performance is not a valid expectation of the future. Against this background the company’s argument is that fees paid is one of the only criteria investors can control.
Savova believes too many people in the pensions industry are ignoring the next generation of customers and this is a view I have to agree with. This service may look at pensions selection in a non-conventional way but the key question is: will it appeal to consumers? If so, there may be lessons to learn from it.
Ian McKenna is director of the Finance & Technology Research Centre