Robo Advisors 14 – PensionBee Interview

PensionBee

This post is part of a series on Robo Advisors, Ready-Made Portfolios and low-cost Platforms. A summary spreadsheet and links to all the articles can be found here.

Today’s post is the transcript of an interview I carried out recently with the Marketing VP of robo-advisor PensionBee.

PensionBee Interview

I’ve written about PensionBee twice before.

A few months ago, I reported that they had cut their fees, and were now cheap enough (and good enough, of course) to recommend.

  • As this is the first Robo Advisor that I’ve felt able to endorse, I thought that an interview was in order.
Jasper Martens

Jasper Martens

The person I spoke to was Jasper Martens, the VP of Marketing.

Here’s his official profile:

In the dusty old pension world, Jasper brings pensions back in people’s mind with PensionBee, UK’s first online pension manager. Leading up brand and marketing, he brings 12 years of experience to the fintech startup, voted as one of the innovations of the year by Financial Times.

Jasper started his career working for various startups in Amsterdam through his own online marketing agency. In 2009 Jasper moved to London to join online insurance provider Simply Business as Head of Marketing and Communications. He won a DADI award (online marketing) and Digi Award in 2014 (customer insight) for his campaigns.

There’s almost nothing Jasper likes more than collaborating to make cool things happen.

 

The questions

In my last Robo Advisor interview, I managed nineteen questions, one short of my target.

  • This time I’ve only managed sixteen.

There were a few things we discussed that Jasper didn’t want me to publish.

  • I’ve indicated where things are missing with [REDACTED].

1 – I first reviewed your site back in October 2015. Has anything significant changed since then?

We’ve introduced new features based on our customer feedback:

  1. Our eco-friendly Future World Plan
  2. A new history chart to track fund performance
  3. A fairer fee structure (lower fees on any assets above £100k).
  4. Direct Debit contributions
  5. And last but not least, our improved drawdown service.

We also keep introducing more automation in our operations such as our signature robot Armie:

https://www.instagram.com/p/BWXBxevlRE1/?taken-by=pensionbee

And we’re introducing a mobile app during 2018 for iOS and Android phones.

2 – Who is your target investor?

The first group are the consolidators – people in their 30s and 40s who are the midst of their career and have a couple of pensions from various jobs.

  • They will mostly have modern pensions (DC) so consolidating is straightforward.
  • They often don’t seek advice and want to do this themselves.
  • [REDACTED].

The second group are the ‘drawdowners’, 50+, who have built up various pension pots in the course of their working life.

  • They either look for an easy way to start drawing down on their pension or they are now ready to bring all their pensions together and consider their options.
  • These customers have bigger pensions. It’s a relatively new group of customers for us.

 3 – Why these investors, and why PensionBee?

Thanks to an ageing population and the new auto-enrolment rules, the UK pension market is expected to reach £1tr by 2020. There are already over 13 million pension owners in the UK.

  • On top of this, studies suggest that the average person has 11 different jobs during the course of their working lives.
  • This creates pension complications, with an estimated 37% of those aged 18-44 clueless as to where their pension pot is. Finding them is tricky.
  • Even if they know where their pensions are, they probably don’t know the value of their pension and the fees they’re paying.
  • Pension providers haven’t been the most customer-friendly or innovative, so there’s clear opportunity to disrupt the industry.

4 – Who are your biggest competitors?

In theory, anyone who offers a pension is a competitor!

  • However, we believe the most significant source of competition is customer inertia.
  • Pensions can be seen as dull and boring and we are on a constant mission to change that.
  • [REDACTED]

 

We have also seen some signs of unfair competition, with large providers deliberately blocking savers from switching, but we are addressing these matters through the regulator as they are a matter of treating customers fairly.

5 – How do you handle a client’s risk tolerance?

PensionBee is a non-advised pension product, we don’t provide advice.

  • PensionBee only works with pension plans commonly used in the pensions industry and frequently used as default funds by major corporates.
  • Around 90% of workplace pensions are invested in the default fund, so a transfer to PensionBee is not expected to meaningfully change the risk profile of the pension.
  • A good example is PensionBee Match, which mimics an industry standard for workplace pensions.
  • Our Future World Plan is the default fund for HSBC’s auto-enrolment product.
  • All plans are globally diversified and will meet the requirements for a long-term investment product.
  • All PensionBee plans are managed by some of the worlds’ largest asset managers (BlackRock, State Street and Legal and General).

We do provide a risk factor on our plans page to give the consumer insight in the risk they take if they pick a particular plan.

  • Our plans range from medium to high risk and the customer is free to choose and switch between plans.

6 – Do you have minimum investment amounts?

No. At the moment you have to transfer at least 1 pension to PensionBee, but the size is irrelevant.

  • We will offer new pensions in the future although that’s not our main focus for PensionBee.
  • We’re just very busy building the UK’s best pension manager where you can transfer in all those old pension pots you’ve accrued in the course of your working life.
  • There are also no minimum investment amounts after you’ve combined your pensions. You can setup personal or company contributions through your BeeHive from £1.

7 – What are your benchmarks?

Each plan has its own benchmark and customers can track performance relative to the benchmark on the plan’s factsheet, which is updated quarterly.

8 – Your recent introduction of tiered fees was very welcome, but don’t you think that platform fees should be capped rather than ad valorem?

 

Customers choose us because they want simplicity, clarity and transparency when it comes to their pension savings. Costs are not the main driver for customers to choose PensionBee but it’s not unimportant either.

  • Our fees are low, we don’t position it as the main reason for choosing PensionBee. It’s more a ‘never undersold’ item, a hygiene element of our proposition.
  • When we recently reduced our fees for any assets over £100k, we carefully researched the market and positioned ourselves very competitively.

9 – Have you any plans to bring your fees down further in the future?

We keep monitoring what’s happening in the market and will adjust our fees if necessary.

  • Our customers can be assured that they won’t be left out of pocket when it comes to fees.

10 – Are you planning to introduce any new plans in the future?

Based on what our customers told us what they like about our product and service, we will introduce new plans to cater for specific groups in our customer base.

  • We’re looking at introducing a lower-risk product for risk averse customers and a sharia pension for our Islamic customers who want a sharia compliant product.
  • We’re not looking to replicate fund supermarkets with endless lists of funds. Generally we’ve found that’s not why customers choose PensionBee.
  • A simple, jargon free, good performing pension for a fair fee which you can manage on your phone or any device you like remains very much at the forefront of our proposition.
  • We will introduce new plans in Q2 and Q3 this year after we’ve launched our new mobile app.

11- Do you have any plans to introduce ISAs?

No. The market for ISA’s is saturated with providers and I believe you need to stick to something you’re really good at and do it really well.

12 – Do you have any plans to introduce “Networks” or “Circles” to allow groups of people (families, say – or friends) to club together to access the lower fees on larger pots?

It’s an interesting concept and it’s something we’re looking at. There are some positives and negatives on circles.

  • We currently have a referral scheme which is doing well. It’s often used by family members and close friends.

13 – Would you consider paying introductory or ongoing fees to people who introduce such Networks / Circles?

Our current referral scheme rewards the advocate and the friend both with a £50 pension contribution into their PensionBee pension.

  • The more friends you recommend, the more you save into your pension.

14 – Can a saver split their combined pension pot across more than one Plan?

No, but we have seen some customers asking for this feature.

  • We’re currently doing our research with our customers and this might coincide with the introduction of new plans after Q1.
  • In the meantime, customers can switch between plans for free at any time.

At PensionBee, the customer is not a ‘fund supermarket investor’ looking to invest their funds in various investment funds.

  • They rather want the reassurance that their money is invested by trusted asset managers in diversified investment portfolios.

15 – Why do you use a 5% annuity rate in your Calculator?

An annuity rate depends on many things and the calculator is a simplistic assumption, but the rate is not out of line for many retirees.

  • These days, the average 65-year old can buy a single-life annuity at a rate of just over 5% and with rising rates, the expectation is that annuity rates will keep increasing.
  • 65 is the market-set default retirement age and of course annuity rates increase with age.
  • Unfortunately, few of our customers will be able to retire affordably much earlier than this.

It’s true that level (non indexed) single life annuities at age 65 yield more than 5%, but these are not appropriate for many people. 

With RPI escalation the yield is only 3.2% at age 65, and only 1.9% at age 55.

16 – What’s the current relationship with State Street and how do you see that developing?

In response to this question, Jasper pointed me towards an article on the PensionBee blog announcing the link-up.
State Street (SSGA) are the the world’s third largest asset manager, and they became PensionBee’s largest external shareholder in December 2017 – one week before PensionBee’s third birthday.

Jasper adds:

SSGA’s minority stake helps us in expanding to other countries and introducing new products.
  • Marketing and acquisition can be scaled up.
  • They have an observer seat on the board.
  • Their stake in us is really a token of trust and it has already helped us growing the company.
  • In practice, me being able to pick up the phone and get that support is valuable!
Conclusions

I think everyone knows by now that I’m a fan of PensionBee.

  • I was always sold on their pension consolidation model and their underlying investment options.
  • It just needed them to bring their fees down below 0.4%pa (for larger portfolios) so that I could recommend them.

I’m not sure that surprised is the right word, but once again it seems strange to me that Jasper doesn’t see low fees as the main selling point for PensionBee.

  • This attitude must be based on market research.

Which means in turn that my own focus on low fees is unusual.

  • Unlike investment outcomes, which cannot be known in advance, fees and taxes (along with asset allocation) are to an extent under the control of the investor.
  • They are the most important things for any private investor, even if they don’t realise it.

I also think that the limitation on splitting funds between plans is not ideal, particularly for larger portfolios.

  • The asset allocation within the plans is pretty vanilla, and will need to be offset by other investments elsewhere (SIPPs or ISAs).
  • Splitting funds between two or three Plans would reduce the size of this task.

Of course, these two quibbles are no reason to ignore PensionBee.

  • If you do want to try them out, please use this link.

It won’t cost you anything but it will earn me a few quid if you decide to transfer a pension to them.

Until next time.

Mike is the owner of 7 Circles, and a private investor living in London. He has been managing his own money for 35 years, with some success.

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6 Responses

  1. Bryan Matthew says:

    Interesting Mike but isn’t one of Pension Bee’s strongest attractions (having all your pensions in one place) also a serious weakness? If for example they are correct that the average employee may over their life have 11 different jobs (and up to 11 different pensions), the chances of all of them becoming say insolvent must be very low but if you put them all with just one provider, then the risks are greatly increased.

    I also read something that they put out that in the case of insolvency, Pension Bee are only liable for claims up to 50k- did they indicate if there is any other protection in the case of them going out of business. I am not sure if the FSCS covers you in case of insolvency?

    • Mike Rawson says:

      Hi Bryan,

      I think in part you are confusing DB and DC pensions. DB pensions are more likely to go bust, but have better protection (the Pension Protection Fund pays out 90% / 100% of your pension). You are correct that the chances of 11 DB pensions becoming insolvent are slim, but I wouldn’t want to manage 11 DB pensions in any case. I have two, and that’s plenty.

      PensionBee is more about consolidating your DC pensions. All DC pensions are basically a pot of money on a platform, with that money invested into a set of funds. Compensation is limited to £50K, but that’s not a PensionBee feature, it’s common to all platforms (and to ISAs as well as pensions).

      Since the money is in the underlying funds, your real counterparty is BlackRock, or State Street, not the platform. These fund managers are unlikely to go bust, and you would still have a claim on the assets of the fund.

      Consolidation is a personal issue, and I wouldn’t like to depend on just one pension. But between us, my partner and I currently have 15 pensions, so I think that some consolidation is in order.

      Mike

  2. Hi Brian and Mike,
    If something happens to our money managers, which is where your money is kept, your pension will be protected by the Financial Services Compensation Scheme up to 100%. We’ll also pursue any compensation on your behalf. Contrary to many SIPPS and ISA’s the pension products are setup differently, hence the 100% guarantee without upper limit.

    • Mike Rawson says:

      Hi Jasper,

      That’s good to know, but it sound very unusual for a DC scheme.

      Can you tell us more about how you qualify for 100% compensation under FSCS?

      Thanks,

      Mike

  3. PensionBee plans are managed under a life insurance contract and not as an investment, hence the different level of cover. It was really important for us to set it up this way so customers would not be left out of pocket if something would happen to us or the money manager. Read more about the different level of cover here: https://www.fscs.org.uk/what-we-cover/products/pensions/compensation-limits-for-pensions-retirement-savings/

  4. Emma Johns says:

    Can pensionbee give us a breakdown of how much they as a company retain from the annual management charge on the funds. This is an FCA requirement yet there is never a breakdown provided.

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Robo Advisors 14 – PensionBee Interview

by Mike Rawson time to read: 7 min