The pensions shake-up plus fintech innovation
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The pensions shake-up plus fintech innovation equals a golden opportunity for investors.
The Government’s radical shake-up of pensions – revolutionising how and when people of 55 and over can gain access to their retirement money has caused consternation in some quarters. There have been warnings of fraudsters duping guileless souls out of their nest eggs. Others predict a silver spending spree after April 6.
But the greater autonomy and control over one’s own cash allowed under the forthcoming pension reforms could yield tremendous benefits for those who’ve previously been in the grip of the stodgily conservative pensions industry.
This loosening of pension rules coincides with a remarkable period of disruption in financial services. We’re living through a golden age of investment opportunity, being driven by fintech that’s creating ever more inventive, and transparent ways to save, and invest.
Crowdfunding, peer-to-peer platforms, and other alternative finance providers are beginning to give the traditional institutions a serious run for their money.
I’m thrilled to hear many over-fifties are already talking about alternative finance as a potential place to invest at least part of their retirement pots. Peer-to-peer consumer loans are growing in popularity, as people with some money to spare discover they can support high-growth businesses through online platforms, instead of seeing their modest sums earn even more modest interest via conventional savings and investment vehicles.
Asset-backed mini-bonds are emerging in ever more varied areas, offering investors generous returns, as well as interesting investments. Critics warn of the higher risk involved, but that accounts for the higher returns. And, thankfully, age does not necessarily diminish an appetite for risk.
Nutmeg, Nick Hungerford’s innovative fund management business, recognises this, and decides how to invest clients’ money based on their individual attitude towards risk.
Its online DIY service doesn’t offer advice, and its costs are significantly lower than traditional private wealth firms due to its method of using exchange-traded funds. It’s stripped back, it’s fast, and it’s accessible – minimum investment starts at £1,000. Again, it’s a disruptive model that benefits investors – and a long-overdue wake-up call for the fund management industry.
I hope that when older investors get their hands on their hard-saved pension money they realise the huge tax advantages afforded to those who buy stakes in early-stage firms via the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS).
I’ve talked before about how effective EIS and SEIS is proving both for individual investors, and the companies they support. Whether investment comes direct or via a fund, tax relief of between 30 and 50 per cent makes the attraction quite clear. That more people should benefit from this great system over the coming months and years can only be a good thing both for them, and the economy.
All of these changes, and new ways of investing are giving older individuals an unprecedented level of choice about where they put their money.
The pensions industry has had things fairly sewn up for many years, but as of the new tax year, pension savers will no longer have to tolerate being told what to do. It will be frightening for some, but it’s also a great opportunity. To quote Eleanor Roosevelt, with freedom comes responsibility.
Older people must think carefully about how they use their new-found pension liberty. But they have the chance to be part of something very exciting, and truly groundbreaking. I sincerely hope it’s an opportunity that many choose to take up.
Ayan Mitra, CEO at Code Investing
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