With fewer than a fifth of the UK’s self-employed population saving into a pension, one start-up has challenged traditional providers and savings solutions in a bid to address the issue.
London-based digital pensions provider Penfold’s founders, Pete Hykin, Stuart Robinson and Chris Eastwood, set up the online pensions provider in 2018 after long periods of contracting for companies within financial services, following their shared vision of a clear gap in the market for a pensions company to take on traditional “jargon-filled” providers.
If we can do things like secure kickbacks or bonuses every year until they reach 55, or maybe air miles for pension savings or other types of rewards like that, that would provide some short-term gratification
Around 15 per cent of the UK workforce is considered self-employed, a 5m-strong market, of which some 86 per cent are not saving into a pension.
But according to Mr Eastwood, the pensions industry has “made the mistake” of labelling 5m people under one label of self-employed, while in reality, he says, “there’s a huge variety of different types of professions and different types of working circumstances”.
Tackling under-saving by taking on traditional pension providers
In his role, he attempts to address this by focusing the app’s features on delivering retirement education, engagement and flexibility.
He says: “We are digging beneath the catch-all label of ‘self-employed’ to understand the variable needs of all the different professions, lifestyles and circumstances that make up that broad group of 5m people, with the aim of building something that works for each group individually.”
For example, after setting up a pension in five minutes, members can calculate how much tax relief they can claim on pension contributions, choose where the money is kept or invested, track how much they have saved and what that will mean in the future, top-up their savings or pause contributions.
A key to the business’s future success will be in providing the self-employed with incentives or rewards for savings that they can receive before the age of 55, he adds.
He says: “If we can do things like secure kickbacks or bonuses every year until they reach 55, or maybe air miles for pension savings or other types of rewards like that, that would provide some short-term gratification.”
Pension pot versus Lisa
But why would anyone save into a pension in the first place if they can invest in a Lifetime Isa that offers similar tax savings to a pension pot?
Mr Eastwood says: “For the self-employed, the tax relief is similar for the first £4,000 you pay into your Lisa each year but you can only get that bonus between the ages 18 to 40, whereas pensions offer potentially significantly more tax relief if you are able to pay in more than that amount, or are a higher-rate taxpayer.”
Whereas a Lisa is limited to £5,000 in savings a year – with a saver paying in up to £4,000 and the government adding 25 per cent – so up to £1,000 top-up from the government a year – the limit on pension pots is much higher.
He continues: “The tax incentives for pensions far outstrip these for those fortunate enough to be able to put aside more than £4,000 in one year – with pensions, you can save up to £40,000 per year (or up to your total earnings if this is lower) and get the tax relief added.
Following FCA approval, and a successful closed trial earlier in the year, the desktop app launched in October and is soon to be available as a mobile app, with members’ assets being managed by BlackRock.
