How Penfold is taking the pain out of pensions

If you’re self-employed or the sole director of a company it can be easy to put saving for a pension at the bottom of your to-do list.

Almost 5 million people in the UK are self-employed – or 15 per cent of the workforce. However, just 30 per cent of the self-employed contribute to a pension, according to research from Fidelity

Pete Hykin, the co-founder of digital pension platform Penfold, argues that the inflexible and jargon-filled traditional providers that are currently dominating the market are to blame.

He told The Independent: “The process of running a pension scheme can be quite expensive if it’s done manually and on paper, which is how old school providers usually do it.

“If you’re self-employed and your income goes up and down, lots of provider aren’t interested in your business because they can’t make money from you to cover these costs.

“These providers are also used to having employers in charge of pensions, meaning they are usually talking to finance directors or human resources who understand a lot more about pensions. The industry and their customer services are terrible at talking to normal people. Their processes can be complicated, long and there are no flexible payment options.”

Hykin experienced the issue first-hand when he went freelance after quitting his job at Deloitte: “I was self-employed for quite a while and I tried to set up a pension four or five times but I gave up each time because the process was too lengthy and painful.

“Then, when auto-enrolment came in, I had to set up a workplace pension for a company with 70 employees and several hundred casual staff. It was a terrible experience for us as an employer but it was also a terrible experience for our staff to the extent that lots of them ended up not engaging and leaving money on the table.”

This experience prompted him and his co-founders Chris Eastwood and Stuart Robinson to launch Penfold in late 2019 with the mission to make pensions accessible and more engaging.

The start-up allows customers to set-up, manage and track their pensions easily on their phones or online. Contributions can be paused and topped up with instant one-off payments and there is no minimum deposit when you set up your pension - making it a superior experience for freelance workers and limited company directors whose income can fluctuate widely month on month.

The platform has also incorporated a dashboard so that users are able to see how much they have saved and how far off they are from reaching their ultimate end goal.

There is an annual fee which comes at 0.75 or 0.88 per cent depending on the pension plan you choose. This includes all transaction and fund manager fees that are involved with managing and investing a customer’s pension, making it a competitive offer compared to rivals.

Hykin said: “People think of pensions as this black box of money taken away from them. Nobody actually realises this is not money being taken away from you, it’s money you’re getting from your employer, it’s yours and it’s going into a pot.

“Lots of what we're trying to do is to get rid of that black box and make that money seem real. Showing you how much you have through a live balance.”

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The start-up has now raised $8.5m (£6m) from investors and has been approved by the FCA to operate a pension itself rather than relying on third parties. Penfold has 20 full-time employees and an office in London but staff have mostly been working from home which has had a positive impact on the company, according to Hykin.

He said: “We’ve gone the full hybrid route and it allowed us to hire people all over the country including Scotland, Wales and the north of England – we can get the best person for the job, not just the best person in London. Not all of our staff is set up with a big comfortable office at home though, so we do still have an office space in London that some members of the team use a couple of times a week.”

When Covid first hit in March last year, there was a sharp halt to pension contributions and new sign-ups on Penfold dropped by 90 per cent in the first week of lockdown.

Despite having cash in the bank and supportive investors, Hykin describes it as one of the most challenging moment for the company due to the impact it had on its users. “When the pandemic happened last year – and before the government announced support – lots of our customers were worried they wouldn’t be able to pay their bills. We ended up waiving our fees for the self-employed for six months.

“Of course, we’re proud of it in hindsight but it came out of a very challenging moment for our customers and as a small business you really feel it,” he said.

Once the government announced tangible support for the self-employed and we collectively adapted to the “new normal”, Penfold saw a rapid rise in pension and savings activity. In fact, by July 2020 new accounts had grown by 300 per cent on that March low point.

Contributions and new accounts are now growing at a record pace amongst an audience that was once largely estranged from the pension industry with about 25,000 users to this day.

Hykin said: “Partly these were people stuck at home sorting out their life admin. As lockdown ended, we also saw a lot of people starting their own businesses. Lots of customers who were not self-employed before the pandemic came to us, particularly young people, who are actually a lot more financially savvy that they are given credit for.”

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Although, Penfold is the first pension scheme specifically designed with the self-employed workers in mind, Hykin insists anyone is able to sign up to it and getting these other customers on board will be the focus for this year.

Among other features the app also has a consolidating tool, which allows customers to track down lost pension pots and put them together into one easy-to-manage pot. “Our consolidation tool is for literally everybody and we’re doing a lot of work this year to get customers who aren’t self-employed to understand that Penfold can also be an option for them,” Hykin said.

Within their mission of demystifying pensions, Penfold co-founders are also determined to bring their customers’ money to life and make them realise how impactful their pensions pots can be.

The platform has partnered with Tumelo to let customers explore where their money is invested and it now allows users to have a say on the issues they care about through a new dashboard.

Hykin said: “Your pension is probably the biggest asset you will ever own outside of your house. One of the most exciting and impactful things you can do to influence companies comes through your pension.

“A portion of your pension fund is made up of equities, which may include a small stake in the biggest companies in the world including the likes of Amazon, for example. We might think of shareholders of big companies as masked individuals sitting in a dark room but they are actually people like you and me. As an owner you are entitled to influence some of their decision – whether it’s a vote on their environmental or tax policy – and that is something we are bringing through the app.”