Innovation Interviews: Penny probes for lost pension pots

If all the money known to be trapped in ‘lost’ pension pots was held in one scheme, it would be comfortably bigger than Legal & General’s Worksave master trust, the British Airways pension schemes, and all but two Local Government Pension Schemes.

More than £26.6bn in pension savings is ‘lost’, according to the Pensions Policy Institute’s figures from 2022. A more mobile workforce coupled with auto-enrolment has meant a recent proliferation of small pots left with providers when members change jobs.

Saving the pennies

Several pension pot consolidation services have emerged in recent years, some from established names such as Aviva, and others from new companies seeking to make a positive impact on savers.

Penny is one of the latter. Founded in 2019 by brothers Josh and Nate Stott, this app-based service began life as an attempt to help self-employed people and those on short-term contracts to save for retirement. However, it quickly expanded to cater for people with multiple pension pots seeking a way of finding and combining them.

To date, it has helped thousands of users locate and access more than £321m in retirement savings, attracting users through social and traditional media campaigns. This success led to Penny winning the Scheme Technology Innovation Award at the Pensions Expert Innovation Awards last month.

David Henderson is head of pensions at Penny, having joined the startup in 2022 after almost 20 years at Hargreaves Lansdown.

“It’s a young team, but they all – even if it’s their first or second job – realise that finding lost pensions is a problem that needs to be solved,” Henderson tells Pensions Expert.

The make-up of the team, most of whom come from outside of the pensions industry, has been a key factor in the service’s success to date, he says.

“When I was at Hargreaves Lansdown, I used to think of myself as the person that would challenge the norm,” Henderson says. “Now, since joining Penny, I find I’m the one saying ‘this is how it needs to be done’ or ‘this is how it’s always been done’.

“It’s good to have a challenge to that, and quite often there is a different way around an issue. Because they are coming at it with a different perspective, we can work together to come up with a new solution.

“That happens quite a lot, and I think that’s what makes a startup successful, this ability to identify where things can be challenged and to do things in a different way.”

How it works

Penny uses proprietary technology to help users identify former employers and potential pension fund providers. Once given authority to do so by the user, it then contacts providers to request transfers to wherever the user wants.

The system also flags any extra benefits that a saver might be giving up if they transfer, such as a guaranteed income or life insurance benefits. All being well, and if a provider has appropriate digital services, transfers can be quite smooth.

Automation also means Penny can handle many requests at a time and scale its operations without having to spend significantly on recruitment. Its automated systems can identify missing information and initiate contact with providers to fix these issues with minimal input from clients.

However, as Henderson explains, there are often barriers to transfers that can slow down the process significantly. Some, such as pension scam checks, are important and welcome, but others can be a source of frustration for Penny and its customers.

“One of these frustrations is when we’re working with incumbents with legacy systems or legacy books,” he says. “They may have taken on different books in the past with different rules, different ways of working, and different processes. Understanding each of these different processes and navigating them makes it more of a challenge to automate. It’s doable, it just takes a bit longer.”

Looking to the future

Once Penny has navigated the various systems and identified a user’s pension pots, that user has two options. They can either consolidate pots themselves, or use Penny’s own investment options. These currently consist of three simple investment options run by HSBC, but Henderson hints at potential expansion of these services in the future.

He mentions additional investment options, but also highlights plans to understand more about the needs of Penny’s users. This will include making it easier for people to contribute to their pension or make one-off top-up payments – but the company is also looking longer-term.

“At the moment, because of the age profile of our users, taking benefits hasn’t really been too much of an issue so far,” Henderson says. “But we will see that increase over the coming years. We want to make sure the ‘off ramp’ is as easy as the ‘on ramp’, that we support our users in taking their benefits, and that it can be done digitally where possible.”

The company is exploring artificial intelligence solutions such as a digital assistant to help users get a better understanding of their retirement options.

With the decumulation debate heating up as the defined contribution market matures, perhaps the industry needs some outside help to crack this particular problem.