Pension is one of Europe’s largest and most profitable markets. European pension funds alone manage €7tn in combined assets. With a sticky long-term product and the magnitude of assets under management, it is unsurprising why these archaic goliaths have not found an incentive to innovate. To add to all that, pension providers have been selling to companies, not to employees. Their products have been informed by CFO’s, COOs and HR heads’ decisions. They have not been designed to address end-customers’ needs but to create employer lock-ins. They are still mainly paper-based, inflexible, costly with opaque pricing and terms. Incumbents’ solutions create a market failure at two levels;
- excessive fees charged to cover for brick & mortar and on-the-ground B2B sales, leave less money on the table for employees; and
- employers (especially SMEs) do not offer pension as an employee benefit altogether to avoid bearing the fees and confusion.
As with many market failures, regulators often try to fill in the gap. The UK has been most progressive in this respect, having launched the Automatic Enrolment initiative in 2012. This necessitates that all employers, from large corporates to micro businesses, offer a Direct Contribution (DC) workplace pension to eligible employees (aged 22, earn >£10k) and match any employee contribution starting from a minimum of 1% salary (recent gov update). The result? An explosion of new companies looking to capitalise on the opportunity. The majority focused on setup of digital auto-enrolment to help SMEs comply, while some other innovators focusing on digitising and improving the product and service itself (e.g. PensionBee). Let’s not forget the usual suspects; Robo advisors expanding horizontally to offer Self Invested Personal Pensions (SIPP) products (e.g. MoneyFarm)…
There are many takeaways from the UK. When comparing to other European countries, one can quickly realise that innovation and progress is unevenly distributed. In certain geographies, market dynamics are very different (e.g. Germany). In others, however, the fundamentals are very similar but progress is simply lingering behind. Patterns then can become transferable, as drivers that can guide our view on market trajectories;
- a shift from defined benefits (DB) to direct contributions (DC);
- a governmental push for wider inclusion with a tendency towards auto-enrolment reforms (Netherlands is rumoured to be next);
- an explosion of digital-first micro businesses and SMEs with traditional pension products that do not fit their needs.
Enter Grandhood (Grandhood), a Danish play that is looking to ride that wave by creating an end-to-end digital subscription-based workplace pension product for micro businesses and SMEs. A challenge and an opportunity to re-invent pensions for a digital generation starting from Denmark but with a proprietary collaborative model that has the potential to break country barriers. Denmark, broader Scandinavia, the Netherlands … the sky is the limit!
Let’s put things into perspective — in Denmark alone 307,000 employees are not realising their savings potential, mainly because they are not part of a workplace pension plan. This produces an addressable AUM of €1.4bn (average gross income of c. €45,500 and 10% savings rate), a figure that relates to the company’s beachhead market. But let’s not forget about pension consolidation. A large portion of those employees have historical fragmented pension pots that they would like to better understand and get control of. Grandhood would be happy to consolidate all of these under its own scheme. This can happen automatically just by giving consent through a Danish electronic intra-bank network, increasing further the AUM pool. Denmark is just the start, however. Through utilising partners for local pension know-how and by targeting countries with similar demographics (e.g. propensity to save) Grandhood can create an effective geo expansion strategy.
As a startup founder and small business owner, you can now be competitive across other employers in attracting top talent and in increasing retention. You can simply plug and play to offer a pension solution that will allow you to create workforce stability at a time where you value it the most. As an employee, imagine being offered a pension that speaks your own language, with simple terms and pricing. A product that offers you the flexibility that matches your lifestyle. Adjust it and cancel it at any time. Not another robo-advisor in disguise but a workplace product that retains all the tax benefits of a pension.
Short term focus, long term vision — start with a hyper-focused go-to-market strategy and expand over time. Target the underserved and focus on small businesses. Be product-centric and content-led to encourage WOM and organic, similar to a B2C approach. Now more than ever, this new micro and small business segment can combine the benefit of both worlds; B2B and B2C.
But none of that matters without a very solid team. In Jon, Jens and Mathias we found just that, an energetic, passionate group of friends that bring to the table a pertinent mix of domain expertise, complex legal understanding and advanced quant capabilities.
All of us at Speedinvest are excited to be investing in Grandhood, alongside Sunstone Technology Ventures and SEED Capital. We look forward to supporting Grandhood in redefining pensions as we know them!