Investment pathways: Post-implementation review

The Financial Conduct Authority (FCA) has published a statement to present the findings from its post-implementation review of the investment pathways that must be offered by drawdown pension providers to investors that have not been advised with respect to their investments in accordance with the FCA’s policy statement (PS19/21).
To recall, drawdown pension providers offer management and administrative services as regard pension drawdown accounts. That is they invest the funds in the account – on behalf of the customer – into certain investments that match the drawdown objectives of the account holder. Since the publication of the above noted policy statement, drawdown pension providers must offer four investment „options“ to their clients each of which is related to different investment strategies:
Option 1) I have no plans to touch my money.
Option 2) I plan to use my money to set up a guaranteed income (annuity).
Option 3) I plan to start taking money as a long-term income.
Option 4) I plan to take out all of my money.
The objective of this requirement is to enable investors to stay invested in assets, while still drawing income from their accounts, if so wanted. Furthermore, drawdown pension providers of non-advised customers are since required to ensure that investments in cash or cash-like assets are made only upon explicit decision of the account holder. Finally, pension providers are required to give consumers in decumulation (those drawing income from their pension funds) „annual information on the costs and charges“ that the customer as paid.
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In view of these requirements, the FCA has now reviewed „compliance“ with these obligations and the outcomes for customers. The key findings are briefly noted below.
#### Key findings from the review
– The evidence indicates that investment pathways are effectively addressing the harms identified in the ROR (Retirement Outcomes Review) that was conducted in 2018 and basis for bespoke policy statement;
– Stakeholders generally view investment pathways positively as they prevent poor outcomes for savers and provide structured options for consumers;
– So far, investment pathways have not been used extensively by investors, but data shows a 50% take-up in Q1 2023;
– There are significant differences across the industry in the pathways offered to investors and the investment strategies underlying the pathways;
– Also, firms offer various tools for their clients to pick a specific pathway, with some even offering actual „journeys“ along the decision making process; and
– While there is no charge cap for investment pathways, it was found that most providers‘ offerings were within the 0.75% reference cost „limit“.
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To conclude, the FCA outlines some of its ongoing initiatives in relation to investment pathways and better outcomes for pension savers, such as the upcoming consumer duty or the upcoming introduction of pension dashboards.