Our latest insight is the second in a two-part series looking at Investment Pathways, how they work, what workplace pension providers have already implemented, and what further plans are in place.
Investment Pathways were introduced from 01 February 2021 as part of the third phase of the FCA’s Retirement Outcomes Review. A key part of the new Investment Pathways rules is to ensure that communications are regular but clear and concise, including details of costs and charges and other options available to the member. Like during the accumulation phase, a key part of that communication is annual statements.
Our data shows that all workplace pension providers offering Investment Pathways supply members with an Annual Statement.
Aegon Master Trust, Aegon Workplace ARC, Fidelity, Fidelity Master Trust, Royal London, Standard Life and Standard Life DC Master Trust deliver these statements by post. Aviva Designer, Aviva My Money, Legal & General and Legal & General Master trust deliver their statements online via a member portal.
Our data shows that all Investment Pathway Annual Statements include a description of each pathway the customer is invested in, the current value of each pathway investment in cash terms, the drawdown fund split, a statement reminding the customer that they can at any time change their pathway options, a statement reminding the customer they can chose a different product to access their pension savings, and provide warning to members invested in cash. All statements also provide decumulation annual information on the costs and charges.
All Investment Pathway Annual Statements also include a short description of the Investment Pathway options the customer is not currently invested in and the corresponding investment pathway option, and a statement reminding the customer that they can at any time select an investment that is not a pathway investment.
Investment Pathways are generally designed to meet an overall plan for a customer’s retirement income, but it is possible to hold them as part of a diversified portfolio.
Other than for Aviva Designer, all Investment Pathway Annual Statements also include a reminder that the consumer can split their drawdown fund across two or more pathway investments if wanted.
Under the new rules, advisers also need to consider Investment Pathways when assessing suitability for their clients considering drawdown. Essentially, advisers need to ensure they evidence that the investment options they offer to clients in drawdown are equally appropriate and offer the same, or better, value for money than can be obtained via Investment Pathways.
Our data shows that most workplace pension providers have also facilitated for a member deciding that they want to take financial advice after having already chosen an Investment Pathway upon entering decumulation.
Should a member decide they want to take out fully regulated advice whilst using an Investment Pathway, other than for customers of Royal London, all workplace pension providers are able to support this in some form.
Whilst there is no formal price cap for Investment Pathways, during consultations the FCA suggested that providers should be mindful of the fact that for auto-enrolment workplace pension schemes the total cost of investing is 0.75%. Therefore, setting up a de-facto price anchor of 0.75%.
Overall, our data shows that most workplace pension providers have made good progress when it comes to implementing Investment Pathways, as part of the third phase of the FCA’s Retirement Outcomes Review.