8 March 2019
Alex Waite wonders if the growing popularity of crowdfunding could be harnessed by the pensions industry to boost Future Pensioners’ retirement savings…
A few weeks ago I witnessed a phenomenon I’ve not come across before – the concept of ‘crowdfunding’ - a charity donation to mark someone’s birthday celebrations via Facebook. We’re all familiar with charity fundraising platforms like JustGiving and GoFundMe providing easy access to enable friends and family to sponsor marathons or bike rides to Brighton, but I must confess this was a new one for me. With fledgling businesses now experts in the art of sourcing vital growth capital from groups of strangers, crowdfunding seems to be a model that could potentially have applications elsewhere…
Power in numbers
Which led me to thinking – what if there was a way to crowdfund retirement savings? After all, there are plenty of big occasions where it might make sense to ask loved ones to chip in towards a pension. Something to give the wedding couple who already has all the household goods they need (instead of a contribution to the honeymoon fund)? It’s a great graduation gift, a new baby starter pot, a milestone birthday present (especially on reaching adulthood or perhaps even more relevant as retirement date nears)?
Alternatively, parents and grandparents may simply prefer to set up a regular direct debit towards the younger generation’s future. Yes, they could simply give them the cold hard cash, but as it has been proved with charity donations, having a seamless platform through which payments can be deposited makes it a more attractive transaction and administratively much easier for both payee and recipient.
Can it work?
But how realistic is such a set-up? To my mind, there are several obvious hurdles, but they’re not insurmountable. Issues that would need to be considered include:
- The need for a low-cost platform
The level of fees charged by savings providers at the point of payment may be a disincentive and may need to be negotiated to make smaller contributions more feasible for this to work. In addition, a low-cost (ideally free) platform would need to be made available (as with charitable giving platforms), to eliminate a large chunk of the donations being chewed up by intermediaries.
- How big would payments have to be to make it worthwhile?
Fairly significant amounts, either via lump-sums or multiple smaller incremental payments, may be required if such a solution is to bear fruit – but then, that is the whole ethos of crowdfunding.
- Tax treatment
Careful thought may need to be given to developing a system whereby the recipient gets tax relief. My hunch is that it might be suitable to have a process whereby amounts paid in via a fundraising page are held in an intermediate account which the Future Pensioner can then link to their pension saving account, so that it is invested in the same way as the rest of the pot and qualifies for tax relief too. A system where the donor also got some marginal tax relief would be even better! For large contributions, there may be inheritance tax issues to bear in mind.
The good news is that while, in the past, high fees and platform costs may have been a barrier, today more advanced technology enables such transactions to be done seamlessly and inexpensively.
What’s more, as with any other kind of crowdfunding, the more traction platforms can generate, the more viable the business model will be. 10,000 people paying in £100 per annum might not be enough. 100,000 or even 1 million people doing so? Now you’re talking. To get to those kind of levels, you’d need retirement crowdfunding to go viral. Stranger things have happened…
The gift that keeps on giving
There are lots of unanswered questions, but wouldn’t it be great if it could happen? It may sound like a crazy idea, but there’s method in my madness. The platform model already exists, whether that’s via Facebook, modern banks like Virgin Money or fundraising pages similar to JustGiving. With a large amount of wealth held by Baby Boomers and a sense, amongst that group, that younger generations sometimes squander their cash, surely there is demand to ‘grease the wheels’ of wealth transfer between generations in a way that protects that wealth for later in life.
People would always prefer to give (and receive) useful gifts that will provide lasting enjoyment, rather than a set of unwanted steak knives. It seems to me that there’s a potential marketing opportunity for the retirement savings industry here…