Europe Wealthtech Weekend Read

Fintech Pension Providers Lured New Customers During Pandemic but Industry Set for Rocky Year Ahead

2021 and beyond is eagerly awaited by the pensions industry, with a raft of changes sweeping across the industry.

The full impact of the devastating impact wrought by coronavirus is unlikely to be felt by many industries across Europe until government support is turned off and normal working life returns.

The pensions industry is no different: a likely spike in unemployment levels will diminish tax revenues used to fund state pensions and cut contributions to employer-run and individual pension schemes.

One expert said it will be a “miracle” if the UK pensions industry isn’t on the radar to take a hit by chancellor Rishi Sunak, as he looks to foot the bill for Covid-19, with the OBR forecasting borrowing to be £394bn for the year ending April 2021.

Meanwhile, the prospect of further interest rate cuts will further dent the income pension funds earn from fixed-income investments.

On the positive side, the pandemic has thrown up some positive trends: one of which is app-based fintech pension providers seeing an uptick in new customers and website visits, as lockdown prompted customers to take a more active interest in their finances.

Darren Philp, director of policy and communications, Smart Pension, the auto-enrolment pensions firm, says the pandemic has underscored the shift of consumers carrying out more activities online.

“People just expect that service to be at their fingers and to be able to do stuff in real-time. Not only has the pandemic and furlough and the lockdowns changed the way of work, but I think it will also change the way people want to engage with their products.

“And I can see that being one of the key drivers for pension schemes having to invest in technology.”

Other changes and trends across the sector are long-standing ones: such as the eagerly-awaited arrival of the government-led Pensions Dashboard; the switch to ethical and sustainable pension plans, and technology driving change.

Covid pressure on pensions

 In the UK, the pandemic has continued to wreak drastic consequences on personal finances, a trend likely to continue until an economic recovery is underway.

Most people in the UK have a defined contribution (DC) pension, either through work or their own scheme.

During coronavirus, it’s likely that most people on DC pension schemes will have witnessed the value of their investments fall in value as stock markets plummeted.

More people drawing on pensions

Due to financial pressures, the pandemic has also led to more people drawing on their pension earlier than they might have done.

Meanwhile, across Europe, there have been calls for policymakers to bring in reforms to avoid a retirement crisis, amid concerns about state funding for pension schemes being cut and the reduction of contribution to retirement schemes.

Pensions to take a hit amid economic recovery

 In the UK, the chancellor has already signalled that he wants to raise funds to meet the mammoth cost of propping the country up during the pandemic.

Experts believe the pensions industry is likely to take a hit, as restrictions are eased we will see the full impact on the labour market.

Philp said: “It think it will be almost a miracle if pensions come out unscathed from any fiscal consolidation that will come out when they start tightening the books again.”

There has been speculation that the chancellor could renege on the government’s promise to increase the state pensions of millions of elderly citizens by at least 2.5 per cent every year.

According to Bloomberg, Sunak will retain the triple lock guarantee to raise the state pension, which over 12m people receive, by the highest of three measures: annual growth in average earnings, inflation, or 2.5 per cent.

The forthcoming budget could, though, see a cut to pension tax breaks for wealthier savers.

Pension apps flying during the pandemic

 On the positive side, fintech firms providing pension services have seen positive trends during the pandemic, as consumers take time to assess their finances during lockdown.

Over the past few years, fintechs such as Nutmeg, Moneyfarm, WealthSimple and Revolut, through a partnership with Smart Pension, have broadened their offerings with pension products.

Many of these fintechs offering pension products say they have seen an uptick in new customers during lockdown, as has PensionBee, a pureplay pension fintech.

Clare Reilly, chief engagement officer, PensionBee, said:” “Lots of people had a to-do list in their life and never really got through.  And pensions were somewhere near the bottom of it.

“And it involved them digging around in drawers for paperwork. And all of a sudden they were at home all the time, and they got to the end of the to-do list.”

Reilly says lots of people today want a simple holistic view of their finances, including their pension, on their phones preferably within one app.

“They don’t want 20 apps on their phone,” she adds.

For instance, PensionBee customers can see their balances also in money management apps like Starling, Moneyhub and Yolt, through its Open Banking partnerships.

On the broader point of fintechs taking on the legacy pension providers, Philp adds: “Fintechs are totally adept at coming into new markets and thinking there is a better way of doing this and they are not blighted by years of legacy.”

The pensions dashboard

The pensions industry is eagerly awaiting the arrival of the Pensions Dashboard.

The Pensions Dashboard is designed to give consumers an overview of all their pensions and hopes to connect over 50m UK adults with over 40,000 pension providers and pension schemes.

The launch of the dashboard, first announced by chancellor George Osborne in 2016, has now been put back to 2023, delayed from 2022.

Originally slated to launch in 2019, the dashboard aims to help millions of people rediscover pension pots in an era when many have several jobs during their careers.

Helen Morrissey, a pensions specialist at Royal London, dubbed the scheme’s progress as moving at a “snail’s space” adding that it latest delay was “hugely disappointing.”

A key reason for its delay is said to have been the lack of data required to populate the dashboard.

Philp points out that it represents a “huge challenge”, pointing out that some pensions are still run of microfiche.

PensionBee, meanwhile, has called for the major pension providers like Aviva and Legal & General– which it says hold 80 per cent of all pension data-to be mandated to openly share their data, to aid the rollout of the dashboard.

It says currently customers can’t access important information about the pension they know they have, like balances, changes, performances and investments.

Reilly adds: “The pensions dashboard and open pensions must develop in parallel if consumers are to achieve pension ownership.”

Switch to ethical pensions

A long-standing trend within the pensions and investment industry likely to become pronounced in the coming years is more consumers wanting their pensions to be environmentally friendly.

Recent research suggests that consumers are still in the dark as to how they can make a difference to the environment through their investments.

According to research from Friends of the Earth, just five per cent of those it surveyed plan to switch their pensions or investment to an ethical or sustainable fund.

While research from Scottish Widows found that almost half (48 per cent) of savers said they were unaware that there are ways to ensure their pension is environmentally friendly.

High-profile campaigns switching mindset

However, high-profile campaigns are shifting the dial. For instance, the Make My Money More campaign, spearheaded by Love Actually director Richard Curtis, which aims to help shift billions in UK pension out of industries that harm people and the planet and into sustainable businesses, has helped raise awareness, experts say.

Kat Mann, a savings and investment specialist at Nutmeg, said: “I definitely think the shift towards ethical, green, socially responsible pensions, we saw that a lot last year.

“We definitely saw an increase in both new pensions going into our socially responsible portfolios and we have seen it from people with existing pensions who are transferring into a socially responsible portfolio.”


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