Our latest insight is the first 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.

Investment Pathways have been heralded by many as a game-changer when it comes to retirement and are now a mandatory offering for direct-to-consumer providers. Workplace pension providers who are both advisory and direct-to-consumer facing must offer them to both their advised and non-advised customers.

Introduced for customers entering drawdown without taking financial advice, Investment Pathways were designed to deliver better retirement outcomes for those who may not have the confidence to make robust and informed investment decisions when it comes to their retirement.

They aim to make sure that those entering drawdown only invest all (or most) of their pension savings in cash, or assets with similar characteristics, unless they have made the active decision to do so.

Investment Pathways must also ensure costs and charges are clear, reasonable, and regularly communicated. This includes not bombarding customers with too much information, something which many workplace pension providers have fallen guilty of in the past.

Our data shows that the majority of workplace pension providers have met the regulator’s suggested deadline to implement Investment Pathways in relation to members taking drawdown, and those who have implemented them have done so themselves rather than via a third party.

 

The providers who have not yet implemented Investment Pathways yet are Aviva My Money Master Trust, Hargreaves Lansdown, Mercer Master Trust (Aviva), Mercer Master Trust (Scottish Widows), Scottish Widows, Scottish Widows GSIPP, Scottish Widows Master Trust and True Potential.

Mercer Master Trust (Scottish Widows), Scottish Widows, Scottish Widows GSIPP and Scottish Widows Master Trust all have plans to implement Investment Pathways by the end of the year.

Our data shows that nine workplace pension provider propositions (Aegon Master Trust, Aegon Workplace ARC, Fidelity, Fidelity Master Trust, Legal & General, Legal & General Master Trust, Royal London, Standard Life and Standard Life DC Master Trust allow members to fully implement Investment Pathways online. Only those offered via Aviva will not.

Investment Pathways must offer non-advised customers going into drawdown four investment options that align to the four standardised objectives formulated by the regulator. Providers must offer a single investment solution for each pathway.

Our data shows that all workplace pension providers who already offer Investment Pathways meet the FCA requirement of offering the four investment standardised pathway options, each pathway from each provider also having a default investment solution.

For Aegon Master Trust, Aegon Workplace ARC, Fidelity, Fidelity Master Trust, Legal & General, Legal & General Master Trust, and Royal London, the Investment Pathways include a personalised longevity forecast. Currently Aviva and Standard Life are not.

Most workplace pension providers also include guidance on sustainable drawdown rates within their Investment Pathways. Currently Aviva Designer, Aviva My Money, Legal & General and Legal & General are not. All pathways also have an associated risk definition.

Under the new Investment Pathway rules, workplace pension providers must ensure investment strategies in Investment Pathways are appropriate through the introduction of default options for different objectives, with third-party oversight of those default options via an independent governance committee or third-party governance advisory arrangement.

Table: Investment Pathway defaults

For Fidelity and Fidelity Master Trust, the Investment Pathways options have all been assessed by their Independent Governance Committee and Governance Advisory Arrangement.

For Aegon Master Trust, Aegon Workplace ARC, Aviva Designer, Aviva My Money, Legal & General, Legal & General Master Trust, Royal London and Standard Life these have been assessed by their Independent Governance Committee.

The second part of this insight will be published next week, where we look at Investment Pathway communications, Annual Statements, and the information these contain.