Penfold has launched a workplace pension. In this blog, I argue that it looks an attractive proposition to young and progressive employers though it is not breaking much new ground in terms of investment, governance or administration.
If I have a worry, it is about its sustainability. It is hard to make money from workplace pensions, especially if staff move around. Penfold will need to grab the hearts and minds of the employees who use their workplace pension if they are to avoid the “plethora of small pots” problem and make this part of their proposition profitable over time.
Penfold’s employer proposition
Employers looking to set up or switch to a workplace pension set up under auto-enrolment now have a new choice – Penfold. Penfold has a product which looks similar to Pension Bee, but while Pension Bee has declined to offer its product to employers, Penfold has invested in the technology to interface with payrolls and offer what they call..
Penfold is a personal pension set up to build funds under management that are subject to a 0.75% member charge (reducing for balances over £100,000). Because it is a personal pension , Penfold avoids the pain of having to be approved under the master trust assurance framework. It has found a quick and easy route to market, it now has to work out if the addressable market is large enough to warrant the cost of AE pension administration.
Penfold’s blog leaves no doubt as to who the workplace pension is being targeted at
It is making a play to be the pension of choice for progressive employers , especially fintechs which would rather offer individual plans to staff than something more collective. It is snapping at the heels of Smart and Cushon, both of whom have a similar marketing approach but neither of which offer personal pensions.
Penfold has told Professional Pensions that over 100 UK business have signed up to the platform along with over 5,000 workplace members, 40% of whom have already requested to transfer over their old pension pots. The total number of savers registered with Penfold now sits at 45,000 (so the bulk of the business is direct to the consumer)
Funds and fund costs.
Penfold are marketing each fund as a different plan. The costs of the plans are said to be 0.75% for each.
Investment management is outsourced to BlackRock, HSBC and for voting services Tumelo
There is no mention of a default fund though the Lifetime fund/plan is mentioned as “most popular”. If joiners make no choice, it’s not clear what plan they end up in.
If there is one, it looks very much like the BlackRock Lifepath and it offers a look through on a phone or web portal to the individual stocks together with Tumelo’s voting service.
The standard plan offers a choice of four asset allocations from BlackRock. It is accessing their passive funds. The sustainable plan looks like the BlackRock MyMap 5 ESG fund.
All of these funds are offered at 0.17% which is added to a 0.58% admin charge from Penfold.
There is some confusion from the website as to the Sharia fund (HSBC) which is offered at 0.88% (0.58+0.30) for personal pension holders but advertised at 0.75% for workplace pensions.
There is nothing in this selection of funds that is very new, but what there is is presented well and the inclusion of Tumelo is good. I suggest that in its peer group (Cushon and Smart) the fund choice is a little behind the curve and it is hard to see how Penfold will be accessing more expensive and potentially more lucrative asset classes any time soon. Relative to Pension Bee, the funds on offer look rather less funky, relative to Vanguard , rather more expensive.
The proposition is governed by a GAA (Pitmans), this suggests a “me-too” approach , which is how I’d characterise the investment proposition. This is ok for now, it is certainly a better start than many workplace pensions have made!
Penfold’s marketing material talks a lot about tax. As a GPP it has the advantage over Cushon and Smart of not leaving low paid employees with no prospect of the 25% tax-top-up over the next three years. Instead, it leaves higher rate tax-payers to claim their tax top-up back (though it gives a lot of help on how to do this). The tax angles of pensions are clearly set out with powerful words such as “exploit” and “sacrifice” to the fore.
A peep behind the curtain tells us that unlike Pension Bee, that uses its own version of sales force for record keeping and investment administration, Penfold has had a dependency on third parties. Until March Penfold actually sat on somebody else’s SIPP. This is from Gaudi’s website.
Penfold inform me that since March it has operated its own SIPP on its own technology, having taking over administration and moving all members to the Penfold scheme.
Those who have experience of platforms will know Gaudi as the re-brand of CTC (Nigel Chambers technology solution).
Custody is outsourced to Seccl, another Fintech which also provides the Sipp tax wrapper.
Sustainability of workplace pension-
Outsourcing the “back-end” to Gaudi may look a smart move, but any employer doing its due-diligence should be asking just how much of what they are buying is under the control of the people fronting Penfold. Penfold is dependent on Gaudi not just for the fundamental service standards, but for its long-term commercial viability. Unlike non-workplace propositions, this workplace pension has no headroom to increase prices beyond its current level.
Setting a workplace pension up at this stage of the auto-enrolment staging cycle (e.g. after it’s over), requires there to be demand not just from new companies but from young companies looking to have better pensions. Penfold scores for rethinking the presentation of pensions as employee benefits to organisations looking for a fresh approach.
By offering each fund as a different plan, Penfold may be breaking new ground but I suspect that many joining through auto-enrolment will be defaulted. Their website should be clearer about this.
Each part of the proposition looks “good enough” and together this looks an attractive alternative for young employers. But I worry that perhaps Penfold has outsourced too much and wonder just how it will make money on this proposition , sufficient to allow it to grow its proposition, as it will need to. We will see how self-sufficient Penfold is in the months and years to come – but in any event, we wish Penfold well in what is a brave new venture.