The Danish fintech startup, Grandhood is helping 325,000 employees in small and medium enterprises start saving for retirement by giving them freedom and full control.
Over 750,000 Danes between 25 and 59 years old are not saving for their retirement (Danish Treasury, 2018). The Danish fintech startup, Grandhood is working to change that.
“Grandhood’s mission is to help people without retirement savings and thereby help even out third-age income inequality. 750,000 Danes haven’t started saving. What’s interesting is that in many cases, it isn’t because they don’t earn enough to begin saving. It’s because there’s no value proposition for them in the offers that are currently available,” says Jon Lieberkind, chief executive officer and co-founder of Grandhood.
The fintech startup estimates that nearly half of the people who haven’t started saving – 325,000 Danes – are either a small business owner or are employed by one who doesn’t offer a pension plan. Quite simply, they don’t fit into the existing pension companies’ boxes. By offering a new, digital pension savings solution which promises to be anything but rigid, Grandhood wants to make it not only possible but attractive for the 325,000 to start saving.
Grandhood unbundles pension savings from insurance
Among those Danes who lack a retirement plan, there is a surplus of freelancers and individuals who are self-employed – categories that are only expected to grow in the future labour market. Current pension plans are typically offered to companies. This means that every employee is forced into the deal, which comes with mandatory rates, insurance premiums, and little say over where earnings are invested.
“We are turning things upside down. Grandhood doesn’t have any requirements on how much the employer or employee has to pay each month. There are no requirements as to how many employees from the company need to be part of the plan. Moreover, insurance isn’t mandatory,” Lieberkind explains.
With respect to Grandhood’s value proposition, Lieberkind observes that “The insurance part of pensions have seen a price war in Denmark because that’s what the end user can easily relate to. Cheap insurance is bait. However, the big pension companies can only afford losing money on the cheap insurance because they are making huge profits on a more hidden cost: The investment costs. That’s exactly what the end-user doesn’t see, but it is an enormous amount during a 30-year investment horizon – it’s compound interest working against you.”
The unbundling of pensions and insurance is already the norm in the United States and Great Britain markets. For Lieberkind, this approach creates a fairer and more transparent offer.
Amplifying the point, “We all have to focus on what we’re best at, so investment managers like Grandhood take care of the pension investments, insurance companies take care of insurance – and users get full transparency,” Lieberkind says.
A digital solution that keeps costs down
This flexible and low-cost pension savings solution is made possible by the fintech’s digital base. In turn, the digital foundation makes Grandhood cost-efficient enough to be attractive to small companies.
“We have automated all the processes that can be automated, which means we can help onboard entire companies within 3 minutes. That has never been done in pensions before. Normally, the sales cycles are months long. With Grandhood, companies avoid a lengthy onboarding process, and it makes the model profitable enough for us to offer the product to companies with fewer than 5 employees, which isn’t attractive for traditional pension companies,” Lieberkind maintains.
Costs are further lowered because Grandhood, as an independent asset manager, maintains a lean and focused in-house investment team that invests pensions in exchange-traded funds.
On top of keeping costs down, the digital core enables users to set their own savings rate.
“Employees in the gig-economy of the future can adjust their savings according to their current income. We already offer it now, but it will become even more seamless. The goal is to make our system fully integrated with payroll system providers, to allow Grandhood members to adjust the deposits from month to month directly from our app,” Lieberkind explains.