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There is a looming retirement crisis in the US and in many other countries for that matter. A large portion of the population has no retirement savings at all and will have to rely primarily on social security for their retirement income, and the future of that program is shaky at best.
In fintech, not a lot of attention has been paid to this huge sector of financial services: retirement savings. And yet, there is so much room for digital innovation as much of it is still antiquated and paper-based.
My next guest on the Fintech One-on-One podcast is Romi Savova, the CEO and Founder of PensionBee. An established fintech in the UK with a history going back 10 years that included an IPO in 2021, PensionBee is focused on bringing innovation to retirement savings. They have recently launched in the US market.
In this podcast you will learn:
- The frustration that Romi experienced that led to the founding of PensionBee.
- The average number of times people switch jobs in their lifetime.
- How PensionBee helps workers simplify their retirement savings.
- The state of retirement in the UK.
- The traction that PensionBee has made in the UK.
- Why they decided to become a public company in 2021.
- What was behind their decision to expand to the US now.
- How their partnership with State Street works.
- Where they are at with their US rollout.
- The different investment options available for US investors.
- How many workplace retirement accounts have been abandoned in the US.
- The difference between the US and UK when it comes to retirement savings.
- How the PensionBee onboarding process works.
- How Romi views the future of retirement in the US.
- Her goals for PensionBee in the US.
Read a transcription of our conversation below.
FINTECH ONE-ON-ONE PODCAST NO. 512 – ROMI SAVOVA
Peter Renton: Welcome. After more than 500 episodes, I have decided to give the Fintech One-on-One Podcast a bit of a refresh. You’ll notice new music, a new intro, better sound quality, and some more subtle differences as well. And we’ll also be launching some new features soon. Of course, you still get the same quality interviews that have made this one of the most downloaded podcasts in fintech.
Romi Savova: Well, I see it as a tale of two stories. On the one hand, you definitely have individuals who have made substantial provisions for themselves, and some of the account sizes in the US are definitely going to be able to support a very happy retirement. You know, I think within the IRA industry, the average account size is in the couple hundred thousand dollar space, and that can certainly go a long way. On the other hand, you have a lot of individuals who haven’t yet made any provision for themselves. And one of the most striking characteristics we see in the U.S. market is that only about a third of households actually have IRAs, individual retirement accounts. And to me, that is pretty striking because it tells us that a huge number of people just haven’t addressed this problem for themselves yet. And that means, well, it could mean that you have to work for a really, really long time.
PR: This is the Fintech One-on-One podcast, the show for fintech enthusiasts looking to better understand the leaders shaping fintech and banking today. My name is Peter Renton, and since 2013, I’ve been conducting in-depth interviews with fintech founders and banking executives. On the show today, we have Romi Savova. She is the CEO and Founder of PensionBee. Now, you may not have heard of PensionBee here in the US, but they are very well known in their home country, the UK, where they started. In fact, they are a publicly listed company there now. PensionBee has recently arrived in the US, and its mission is to help people with their retirement savings so that everyone can enjoy a happy and prosperous retirement. We certainly need that help in this country as there is a looming retirement crisis. PensionBee has a plan and the tools to address this head-on, which we get into in some detail in this interview. Now, let’s get on with the show.
Welcome to the podcast, Romi.
RV: Thank you for having me.
PR: My pleasure. So great to have you on. I’d like to start with going back about a decade, back when you founded PensionBee. What was the thing you saw? What did you really feel like the opportunity was that you could sink your teeth into?
RV: Well, I had my own very frustrating retirement account situation, whereby I had left an employer, and I had left my account there, and I really wanted to move it to a new place so I could be in control of it. And I discovered a bureaucratic nightmare in that it was really difficult to move. It was really difficult to find a provider who would take me on. Overall, it just felt like a process and an experience that was far too complicated for such an important savings product, your retirement savings, your pension, or your IRA in the US. And so I recognized the opportunity that we, as PensionBee, could help millions of consumers, initially here in the UK and then eventually also in the US, to help millions of consumers to do this more simply, more easily, and to have a good retirement one day.
PR: How do you do that? Maybe you could explain what you do. You studied in the UK, and you’ve recently launched in the US; maybe you can tell us what the differences are. What is it that you make easier?
RS: Yes, very happy to explain. In the UK and the US, people need to save for retirement because the government backstop simply isn’t there. And so a lot of that saving happens through the workplace. Your employer will typically give you a retirement account. In the UK, they’re called pensions. In the US, they’re called 401ks. And you and your employer will pay into them. But of course, the average person does not just stay in one job for life. In fact, the average person switches jobs around 11 times in the UK and around 12 times in the US. So, lots of job moving going around and, you know, that I think is a very common feature of modern economies. And so every time you get a new job, you hopefully get a new retirement account. And if you don’t bring them together into one place, you can wind up with 10, 11, or 12 different retirement accounts, which become almost impossible to manage. First, you don’t have a good overview of how much you’ve saved in total. You don’t necessarily know how each of them is invested, what you’re paying in fees, and how you’re going to use that money to have a happy retirement one day. So, at PensionBee, we make that really simple. We help people to bring their old retirement accounts together, which they usually got through the workplace, and put them into one personal account that is theirs, with their total balance where their money is invested with some of the world’s leading money managers. We work with State Street and BlackRock, where they can have transparency over their retirement savings to prepare for and enjoy that happy retirement.
PR: Interesting. So you’re helping people with their previous jobs, bringing all that together. For the existing pension that they might have at their current job, you leave that alone, right? Because I imagine you can’t get to that while they’re still working. I mean, that’s certainly the case in the US. Is this for your old retirement accounts only?
RS: Yes, it’s for your old accounts that you got either through previous periods of employment, or it’s for old personal accounts that you may have set up and are no longer feeling as loved as they were once before.
PR: Right. Gotcha. Okay. So you can bring your personal accounts, your old business accounts, and bring them all together under one roof at PensionBee, is that right?
RS: Yes. And we will help you manage that for retirement and ultimately then also to spend it in retirement. We aim to have a lifelong relationship with our customers. We have customers ranging from the ages of 18 to 80.
PR: Okay. I’m impressed with the 18-year-olds. That’s really good.
RS: Commitment.
PR: Yes, indeed. Let’s start with the UK. What is the state of retirement in the UK? Here in the US, it’s in a pretty sorry state, with most of the population not having enough money saved for retirement. Is it the same in the UK?
RS: In the UK, we are definitely climbing an uphill battle when it comes to retirement savings as well. The typical UK consumer has around £20,000 to £25,000 in their retirement account, which, as I’m sure we can all calculate, is probably not going to be enough to fund a very happy retirement.
PR: Right.
RS: We do have the state pension here, which can give you a meaningful backdrop. Indeed, in the US, there is social security, too, which provides some backbone. But ultimately, individuals do need to pay in. And so, in the UK, there is a mandatory contribution rate of around 8%, which is what you pay in and what your employer pays in. And by and large, all employers will offer that. If you have started saving under the new system, and let’s say you’re in your 20s or 30s, you’re probably going to be in a fairly good spot when you get to your 60s and 70s, which is when most people will start using that money. So, I do think that the accounts now are still in the process of growing. But once we give that opportunity for growth over a number of decades in the UK, I actually think a lot of people will end up in a decent place.
PR: Is that 8 % mandatory, or is that just generally accepted?
RS: It is mandatory. Therefore, the vast majority of people in the UK who are working receive contributions.
PR: Okay. Interesting. So, even small businesses have to adhere to that program.
RS: Absolutely.
PR: Okay. Because it’s certainly not that way in the US. Consequently, we’re in a bit of a hole, I think. It’s been about a decade now. Tell us about the traction you have made in the UK.
RS: Yeah. And in the UK, it’s been almost 10 years. We’ll be celebrating our birthday in December. And we have certainly transformed the market, I believe, for the better of consumers here. As a starting point, I suppose a lot of consumers have now found that they have a home for their retirement accounts. When I first started this business, most companies told me I had to get myself a financial advisor. But of course, most financial advisors are not interested in you as a client unless you have several hundred thousand pounds or dollars in savings. So, finding a financial advisor is almost impossible; I certainly left my number on many websites only to never be called back. I believe that we’ve offered many UK consumers a home for their accounts where they wouldn’t have typically been able to work with an advisor. And that, for us, is, of course, very rewarding. We’ve also invested a huge amount in our brand and our brand awareness. In the UK, we have about 60 % brand awareness, meaning more than half of people here have heard of PensionBee. We believe that’s a great thing because it really encourages people to think about their retirement savings and puts them in the frame of mind of wanting to sort out whatever paperwork they have lying around in their drawer and hopefully bring those accounts together with us. I would say we’ve made a real dent in terms of making pensions accessible to many consumers in the UK.
PR: The people will listen to this on a podcast, and they won’t be able to see it, but you have a Brentford jersey behind you with PensionBee on the front. I’m a big Premier League fan. I imagine that’s been a big awareness-getter for you guys, sponsoring a premier league team.
RS: Absolutely. The Premier League is something that is really widely watched, certainly in the UK, but also in the US. I believe half a million people. And, of course, in the US, you can watch it early in the morning, and you can air all of the games that show here in the UK at 3pm, which are typically not televised. So, in the US, you may even have better access to the Premier League.
PR: I think we do. Every single game now is televised, which I love because I’m a huge fan. Anyway, we didn’t book this interview to talk about soccer. So, then you did something that’s unusual, I think, for a company of your size, certainly in the US. You became a public company in 2021. You’re listed on the London Stock Exchange. So, what was behind that decision? Why did you do that?
RS: Well, I always knew that PensionBee would be a public company. We’re a consumer-facing business, and therefore, the final and natural ownership structure of a large financial consumer-facing business usually does tend to be going public. I suppose we came a little bit early in our journey, but what prompted us to come to market was really the fact that we have a lot of visibility and predictability over our model. We know that millions of consumers in the UK need help with their pensions. We have a fairly predictable approach to deploying marketing expenditure and onboarding thousands of invested customers in any given quarter. Therefore, we build and put forward a very confident business plan and projections that would support our entry into the public market. And so with that underpin, even though we were possibly a little bit earlier in our journey compared to other companies that go public, we’ve been able to thrive in the public markets. And that has certainly contributed to our increasing brand awareness. It’s contributed to consumer trust. It’s contributed to our being able to get the right investors. So, I would say that for us, it was absolutely the right decision to go public in 2021.
PR: You’ve been a public company now for three years, and obviously, with all of the public scrutiny that goes on, you have to make detailed financials available to the public. Are you guys profitable yet?
RS: Yes. One of the key goals that we set for ourselves at the time of the IPO was to hit profitability by the end of 2023. And so, with that kind of milestone in front of us, we, of course, worked very hard to get there. And at the end of last year, we generated our first quarter of profitability. So, in the UK, where we have a very predictable and sizable business, we have 5.5 billion pounds, which is about seven billion USD of assets on behalf of more than a quarter of a million invested customers. We’ve had the scale and economic efficiency to deliver on that expected profitability at the end of last year.
PR: Okay, so let’s turn now to the US. Firstly, why did you decide to expand to the US? Obviously, the US is the biggest market in the world, so there’s that, but tell us about your decision to expand to the US.
RS: Well, the US expansion decision certainly has something to do with the size of the market. As you said, the US and the UK together account for more than 85% of the global total in retirement assets within defined contribution pensions, which is the part we look at. So, market size was definitely a factor. But what really attracted us was that the consumer problems appear very similar. In the US, there are a lot of people who have had previous jobs, who’ve left their 401ks behind with the former employer’s record keeper and plan, who may have lost track a little bit of where the money is and exactly what it’s doing and how much they’re paying in fees and whether they’ll be ready for retirement. And so the consumer problem, particularly in the segment of the market that we focus on, which is the mass market, appears really similar. It made sense for us to take a lot of the technology we’d already built in the UK and transpose it into the US market to increase the size of our opportunity even further. And I suppose what really made us do it now is that we entered into a partnership with State Street, which would enable us to also do that in a way that we could capitalize on some of their strengths, which includes asset management and their ability to contribute to some of our marketing expenditure.
PR: Okay. So State Street is the custodian of the money. Is that correct?
RS: State Street is actually the manufacturer of the exchange-traded funds that we use within the PensionBee IRA. And we’ve also worked with them to create the right kinds of model portfolios that really suit our target market.
PR: So, who is custodying the money? Is PensionBee custodying it?
RS: PensionBee is actually registered as an investment advisor with the SEC and we work with Apex on the custody side.
PR: Got you. Okay. Have you actually launched in the US? Do you have your first client yet, or where are you at?
RS: We are in the process of what I call live testing, which means we do have some customers. However, we are really focused first on building out the marketing capability to attract customers in large volumes, which so far has been proving quite effective. We’re finding that given the size of the market, it’s certainly, I would say, quite straightforward for us to be able to take the expenditure knowledge that we have on the marketing side from the UK and apply it to the US and use it to reach millions of consumers. We’ve explored quite a lot of the channels that we plan on scaling up, including paid search and paid social, and we’ll continue to develop that further. The second piece that we’re working on is really about our product features and the ability to make the rollovers and the transfers as smooth and as easy as we’ve made them in the UK.
PR: Okay. Can you explain what kinds of investments the US clients will be able to choose from?
RS: Absolutely. One of the main challenges within the US IRA market is when people move their 401ks to an IRA, they automatically put them in cash, which tends to be not a great decision for your long-term investments because cash will generally not yield the same returns as investing in a diversified portfolio of different types of assets. And so for PensionBee, one of the core differentiators of when you become a PensionBee customer is that you’ll be put into one of our target date portfolios, which is really designed to mirror what you probably would have had at one of the very large employers. So, we offer you a similar investing proposition to what you would have had with a previous employer. And that target date portfolio will be customized according to your age. So, if you’re in your thirties, your investments would be more suited to someone who has another 20 or 30 years to go until they begin accessing their retirement funds. Whereas if you’re in your 50s or 60s, you will probably be invested in something that is lower risk and more suited towards a shorter investment horizon. So, we really match the investments to someone’s age as a default position. In addition to that, one of the more interesting investment options that we have is actually our climate plan, which enables our customers to invest in a way that effectively decarbonizes their investments over a particular timeframe so that we can meet the Paris Agreement goals. That can be an interesting option for customers who are particularly climate-conscious.
PR: Right. So here in the US, it sounds like it’s similar to what the UK is doing. A lot of companies, it’s not mandatory, offer a 401k, and some people have a separate IRA account that has limits. But what people should be doing is contributing to both, right? They should contribute to their 401k at work and the IRA, which is independent of where they work. I presume you’re encouraging people to set up automated deposits, dollar cost averaging their way in. What are some of the things you’re doing to help encourage people to grow their retirement nest egg?
RS: Well, one of the most effective places to contribute, as you said, is, of course, in the workplace. And it’s important to make sure that people are maxing out the contributions that they can also get from their employer. Often, that happens through employer matching. So, usually, my first tip when it comes to contributions is to make sure that you are maximizing any match that you can get from your employer. After that, as you said, you can think about effective ways to contribute to your accounts more generally, whether that’s through a traditional IRA, the product we currently offer. But what we find is that a lot of people contribute to a Roth IRA. And so that is one of the products that’s on our roadmap for early next year because we think that the typical Roth IRA may be a more opportune place to put your personal contributions, given the higher tax allowances that exist within that product. So yes, absolutely, we believe in contributing and growing your retirement savings, so you have that nest egg ready for retirement. Through our product suite at PensionBee, you should be able to achieve all of the contributions that you want to make to your personal accounts.
PR: Right. It’s pretty clear you’ve done your homework on the US market, and I’m curious about some of the similarities and differences when it comes to retirement savings. What are the differences and similarities between the UK and the US?
RS: Well, there are definitely a lot of similarities, as we’ve discussed, in terms of employers paying in, people switching jobs, and leaving accounts behind. In the US alone, there are 30 million old workplace accounts that have been abandoned, but there’s definitely also a lot of differences. And let’s perhaps first focus on the relationship between the employee and the employer. In the UK, it is mandatory for employers of all sizes to enroll eligible employees, which means the vast majority of employees, into retirement savings accounts and to pay a proportion of their salary into those. In the US, we find that that approach to automatic enrollment is a little bit softer and could probably benefit from additional government impetus to get employers to pay in for their employees, including employees that may be earlier on in their careers, employees that may not be on a full five-day working schedule and employees that the current approach to savings might not otherwise cover. In the US, we find that there are definitely a number of strange quirks when it comes to the way that money can be paid in. For example, the concept of a vesting schedule for your retirement account doesn’t really exist in the UK. In the UK, once your money has been paid into your retirement account, it’s your retirement account. And therefore, you aren’t subject to further qualifications to be able to have ownership of the retirement account. There are certain quirks like that that we think would help the US increase its coverage and make sure that more people are actually captured within the employer-employee relationship for retirement savings. So that’s definitely one that I tend to see quite a lot. I would say that there are also some differences in terms of the way that transfers and rollovers work. In the UK, I genuinely cannot remember the last time I saw a check. In the US, the checks are very prevalent. So, we would think that it would make sense for the checks to stop flying around and to have some slightly more automated and direct ways for people to move their money, which I think is hopefully something that will be tackled through future legislation to bring the US more in line with some of the electronic payment methods that we have here in the UK. So, there are definitely a few differences in terms of the structure of the market. And I think probably also some ways that the transfers in the US can be made smoother so that we don’t have all these checks flying around with a lot of consumers effectively being out of the market while that’s happening.
PR: As someone who has been navigating the US retirement system for 30-plus years, it is still astounding to me, being in fintech, that it is so paper-based. You know, the default is checks. If you want to redeem your investment from pretty much anywhere, that’s still very, very common. And I think it’s a shame really. But anyway, I want to go through the onboarding process here. When you’re signing up a new US customer, take us through that onboarding process and how you are locating some of their old retirement accounts.
RS: Yeah, absolutely. When you sign up with PensionBee, we want to make it as smooth and easy as possible for our customers. Our goal is only to ever ask you for the information that we need when we need it. We aim to eliminate and reduce all sorts of paper and friction as much as we possibly can. When you sign up, I think it should probably take you a couple of minutes. We’ll ask you some questions about you, your identity, and who you are so we can perform your customer operations and the background. We will ask you for some information on your previous accounts, including, for example, who your employer was if we’re talking about a 401k account or who your IRA provider is if we’re talking about your IRA account that you want to move over. With that information, we will then make some decisions and show you some information as to, on the 401k side, for example, who we believe your provider to be. So, for example, if you tell us that you worked at Goldman Sachs, which is one of my former employers, we will tell you that your provider is a company called Alight. For a lot of people, that is actually new information because the record-keeping and retirement savings portals can be white labeled. So we will give you a suggestion and a prompt as to who we believe your provider is.
The next thing that will happen if we stay with the 401k journey is you can agree or you can disagree with us, and we find that most people do agree. But once we have that information in one place, we ask you to effectively sign and enter what we call the beehive. And so, within the beehive, which is our logged-in account state, you can see the various transfers you’ve added and the next steps to get them rolled over. And that will really depend on the record keeper and the provider that we’re dealing with. In some cases, depending on whether the provider accepts this, we will simply deal with and automate the paperwork in the back end. And so you won’t necessarily have to do anything else. In other cases, we will give you a quick guide that shows you exactly what you need to do to click through to initiate your rollover. And in yet other cases, which is definitely one difference that we’re finding to the UK, you may even have to get on the phone with us. So we give you a call now button so that we can speak on the phone and discuss the rollover with your previous provider. All in all, it should take a couple of minutes to sign up and then, depending on who your provider is, maybe another 15 to 20 minutes to get it sorted and get to the other side of the rollover. And so, you know, I think that for a lot of people who don’t really know where to even begin when it comes to tracking down who is my record keeper, where is my money, how do I move this money, it’s a really simple experience. Our goal over the next year and over the coming months is really to make it even simpler so that when you sign up with PensionBee you have to do as little as possible in order to move your money. And that’s really the focus for us to make it even simpler than it is today.
PR: Right, right. Okay. I have a couple more questions before we close. I want to talk about the coming retirement crisis or even the existing retirement crisis in this country, and the fact that social security does provide important resources for those people in retirement, but we’ve heard that it’s going to run out of money sometime in next decade, and that may even become quicker depending on what Congress does. How do you view the future of retirement here in the US?
RS: Well, I see it as a tale of two stories. On the one hand, you definitely have individuals who have made substantial provision for themselves, and some of the account sizes in the US are definitely going to be able to support a very happy retirement. I think within the IRA industry, the average account size is in the couple hundred thousand dollar space, and that can certainly go a long way. On the other hand, you have a lot of individuals who haven’t yet made any provision for themselves. And one of the most striking characteristics we see in the US market is that only about a third of households actually have IRAs, individual retirement accounts. And to me, that is pretty striking because it tells us that a huge number of people just haven’t addressed this problem for themselves yet. And that means, well, it could mean that you have to work for a really, really long time. So, in your 60s, 70s, 80s, and maybe even beyond, we find that people typically want to retire in their 60s, but without having made some level of personal provision for it, that is incredibly difficult. You know, I think the other alternative is really hard to think about. And so we always encourage at PensionBee, you know, it’s never too late, just get started. Think about how you can put away whatever it is that you can put away into your account so that when you get to your 60s or 70s, you’re able to supplement whatever it is that social security is paying out.
PR: What are your goals for PensionBee here in the US?
RS: Our goals for PensionBee in the US are to help as many consumers as possible to be retirement confident. From a financial perspective, we’ve outlined the fact that we would like the UK and the US business to be of equivalent size to each other over the next five to 10 years. And of course, our UK business is growing very quickly. And therefore, our US business needs to be growing very quickly as well. But because there are so many millions of consumers in the US who we feel would benefit from an easy-to-use retirement product, we think our goals are very deliverable, and we’re excited to be doing something that really helps make a difference in people’s financial lives.
PR: Okay. Well, we’ll have to leave it there, Romi. I really appreciate you coming on the show. Fascinating discussion and important work. The retirement crisis needs addressing. And so I’m glad that you’ve come to this country and launched your product and best of luck to you.
RS: Thank you so much for having me.
PR: If you talk with young people today, many of them believe that Social Security will simply not be able to provide much in the way of support for them in retirement. There is more of a recognition that they have to take control of their own retirement finances, which makes the work that companies like PensionBee are doing all the more critical. Retirement savings has not been an area that has attracted a lot of attention when it comes to fintech investment, but maybe that’s about to change. The market is huge, and it is still antiquated, stuck with paper-driven processes and checks, as we talked about. Seems like a ripe area for fintech innovation. Anyway, that’s it for today’s show. If you enjoy these episodes, please go ahead and leave a review on the podcast platform of your choice. And thanks for listening.