There is a juxtaposition within the pension world. That of you must do something immediately, but you must then do nothing. And you must take on some risk otherwise you risk losing out.
In this interview, we talk to Chris Eastwood the CO-Founder of Penfold a digital pension app on why you should engage with your pension as soon as possible and why risk can pay off in the long run.
Where did the name Penfold come from?
That was a whiteboard session in the early days. We wanted to allude to the word pension in a way and it to sound like a trusted friend that you go to for advice with your money. So we cycled through something with “pen” it in that sounded like a friend that you might speak to about your finances. It wasn’t inspired by the Danger Mouse cartoon.
There’s quite a lot of new pension consolidation apps out there. There’s been a revolution within the pension industry, whereby before, it would be a massive folder tucked in your drawer. But now, there’s lots of different apps where you can consolidate your pensions and potentially have a slick front end and then the back end is run by a traditional money management company.
What makes Penfold Pensions different within your app-based pension landscape?
We founded Penfold with the simple aim of helping people of all backgrounds on the road to actually affording retirement. To do that, put simply, we aim to deliver the very best all-around customer experience for pensions in the market.
It’s rooted in our focus on helpful human support, powered by smart technology. So for us, it’s clear that many people aren’t saving enough for later life. And in our view, that’s because the pension industry makes saving for retirement too difficult.
Pensions are hard to understand, to navigate, to open for yourself. They can be hard to pay into if you’re not just working for an employer. They’re hard to choose how they’re invested or even understand that. Difficult to hunt down and combine your old ones, as you mentioned, or really have any sort of customer support or interaction.
All of this leads to pensions being deprioritised. So the reason for all of those problems is that the industry is rooted in outdated infrastructure that not only make pension schemes expensive and inefficient to run, but it makes it almost impossible to deliver the sort of customer experience that people expect today.
So we have built a whole new pension platform from scratch. We haven’t just built an exciting app and front end, although we’ve done that too, but we’ve really gone back to basics and thought how do you build an entire pension platform using the benefits of the latest technology, smart automations to power a much better experience.
Our pension app allows customers to open a pension in minutes on their phone, to understand the benefits on how much to save, to pay in flexibly when convenient to them, even link their contributions through to a pension of their income via open banking.
Customers can easily choose how it’s invested, from a small, curated range of funds, see where that money is then going in the world, which companies it’s invested in, and even vote on the policies of the companies their pension is invested in. So really connecting people to their investments. But because we’ve invested so heavily in the technology behind the scenes, it means our operations team are free to focus entirely on serving customers, which is reflected in the fantastic ratings we’re getting from those customers.
Our team is there for any questions you have around pensions, which we know, are probably, a lot, and they work around the clock to help them through the inefficiencies that still exist in the consolidation.
So customers can phone you up and have a chat, so you’re not just mobile and web-based?
Exactly. The experience can be entirely digital for most people, but it’s helpful to know that the time you do need help, our team are there on the phone, or on chat.
Compared to traditional pension providers, what’s does the investment range look like for customers? What can people invest in their pension?
Our ethos again is pensions can be confusing, so let’s make it simple.
Let’s provide a range of investment portfolios that we think are suitable for anyone. We offer a small range of all-in-one investment portfolios for our customers, which can be chosen based on the level of risk, your stage of life, or perhaps another focus like sustainability.
Our standard range is a set of four broadly-diversified multi-asset portfolios, managed by macro and those corresponding to four different risk levels. Each portfolio invests across a basket of ten or so index funds, corresponding to different geographies and asset classes, where that allocation between those different funds is dynamic, and that shifts responding to what’s happening in the market. So in times of instability, that allocation can shift to lower risk asset classes and then vice versa.
This mix of low cost and broad diversification that you get from the tracker funds, plus the active risk management on top, has really helped them outperform in the last 18 months.
We’ve recently benchmarked the range against the main workplace pension providers on the market, and Penfold Pensions came out the clear leader in pretty much all categories in terms of returns and risk adjust and returns. That’s the standard range.
In addition to that, we have a lifetime plan that helps you automatically de-risk as you approach retirement. We have a sustainable version, which is similar to the standard range, which adjusts the portfolio towards companies that achieve better sustainability scores. And then finally, we have a Shariah-compliant fund, managed by HSBC, that’s 100% equities, and only invests against companies that are complaint with Shariah law.
Do you see people tinkering with their portfolios and moving them out of different risk categories?
We saw a little bit of that in March last year, and then there was that large correction, but broadly speaking, we don’t see a lot of it, and I think that comes down to communication and I suppose the education around what’s best to do with your investments, around pensions are a long-term investment so it’s best not to tinker. Providing people with that level of information to help make them not make those short-term decisions.
How’s Penfold Pensions doing as a business? How many customers do you have, assets under management? What’s the story so far and where do you hope to go?
We conceived Penfold Pensions in 2018 following some bad experiences that we had with pensions ourselves, and when setting them up at companies we used to work at. We first came to market in October 2019 with a clear focus on helping a hugely underserved market, which was the self-employed. Our first incarnation was just helping the self-employed start saving or consolidate their old pensions.
In the two years since, we’ve broadened out to be available for anyone. We now have 40,000 users and £60 million of assets under management or under administration. Many people now either use Penfold to get going with their pension saving or to hunt down and combine their old pension pots, and then finally, get on track with their retirement goals.
This summer, we launched our workplace pension, offering our modern pension experience via employees, as an auto-enrolment scheme. We’ve been actually blown away by the early response with that launch, and now working with some really exciting companies to offer that better pension experience for their employees that can actually also save them lots of money.
In terms of where we are a business, I think all the building blocks are now in place and our vision is to be a pension that truly works for the modern workforce, because we know that people don’t fit into “I’m employed” or “I’m self-employed”; their lives change over time. We want Penfold Pensions to be the pension that you can use throughout your lifetime, however you earn your money.
Our plans now are to continue to iterate and improve on that core pension experience, and to provide it to an ever greater share of the market.
And where do you hope the business to be? Do you hope to be running the business for the rest of your life or have you got other things that you want to hand the reins over to an executive team when you build it up to a certain point?
That’s why pensions are such an interesting challenge, because it’s an enormous industry and there’s so much potential, but there’s just so many things that can be fixed with it. So for us, we love the space and we want to keep growing and keep delivering for customers, so I don’t have any plans to move on anytime soon.
What’s the biggest mistake you see people make with their pensions, and what do you think they can do to correct it?
I’m going to give two rather than one, if that’s okay?
Number one is starting too late.
People put off pension saving because it’s something that benefits you when you’re much, much older. But the biggest weapon that people have really, in terms of actually being able to afford retirement, is how early they start. So even if you can’t afford a lot, just starting as early as you can, making sure that you’ve got enough to live and be comfortable, but if you start early, your money just goes further and further due to the benefits of compound interest. You can see that those early savings you make in your 20s and 30s really do have an out-sized impact on the final pot, compared to what you may put aside when you’re in your 40s, 50s or 60s. So starting too late is the biggest thing.
The other one is potentially misunderstanding investment risk. Risk is a scary word. It doesn’t help that everyone has to constantly say your capital is at risk, which of course it is, but I think people may look at the concept of investment risk and be “I want to play things safe”, and so the consequence is therefore that you miss out on potential growth. So starting in too low a risk fund or even not investing your money at all means that you’re missing out on the chance of many decades of investment growth, which again is what’s going to help you get to a retirement that you need to afford.
I think fixing that would be basically understanding what risk means, and we’ve got a helpful blog about it, and potentially choosing higher risk funds in your early years of saving.
Any books you could recommend that have been particularly helpful for you in understanding and managing your money better?
There’s a book called Psychology of Money, by Morgan Housel, and I guess there’s three points in there.
One is around leveraging the power of compound interest; time in the market generates your compounding wealth. Basically, as I was saying before, start investing as soon as you can with whatever you can afford and stay invested.
Another point is embrace volatility. Again, coming back to my second point, no low volatility assets like bonds will outperform a more highly volatile asset over a very long period of time, which is what you have with pensions.
And then finally, spread your investments using index funds or diversified grouped investment to increase the chances of high returns and reduce the risk. It’s those three principles that really come through in that book.
Chris Eastwood is Co-Founder of Penfold – A digital pension App