Investment Pathways: Guidance for the Unguided

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Investment pathways are an initiative of the FCA to try help non-advised consumers when accessing their pensions through drawdown. The aim is to ensure that, the non-advised consumer who wishes to place some or all of their pension money into a drawdown fund (“drawdown fund” means either a capped drawdown pension fund or flexi-access drawdown pension fund), is able to make a well informed decision in order to meet their retirement objectives.

What is expected of the Firm dealing with the non-advised consumer?

The Firm dealing with a non-advised consumer who has decided to designate some or all of their pension into a drawdown fund or who have decided to transfer sums or assets already in drawdown into a drawdown arrangement provided by the firm (subject to some exemptions) will be required to carry out a number of actions. These include;

1. Ensure that they give the consumer the opportunity to use the investment pathways;

2. Offer the consumer a pathway investment (solution) or refer the consumer to a firm that offers pathway investments (see pathway exempt firm below);

3. Ensure that the consumer, who has decided to invest wholly or predominantly in cash-like investments, makes an active decision to do so; and

4. Provide warnings to the consumer who has decided to invest wholly or predominantly in cash-like investments.

Firms will also need to remind clients about their option to shop around and use pensions guidance.

The following three steps must be taken to ensure steps (i) and (ii) above are complied with:

1. The firm offers the use of an investment pathway;

2. The firm presents the customer with investment pathway options; and

3. The firm offers the customer pathway investments (solutions).

The FCA states that all firms, offering drawdowns to non-advised consumers, should be covered by their rules and offer these consumers investment pathways. This will include the operators of Self-Invested Personal Pensions (SIPPs). However, the FCA also provides an exemption for certain small providers, who can direct consumers to third parties who will provide the investment solutions.

Why is the FCA doing this?

Since the Government pension freedoms introduced in 2015, the FCA has been working on providing rules to ensure there are less complicated choices and decisions for consumers when considering what to do with their pensions. Regarding the investment pathways, the FCA aims to achieve an increase in the number of drawdown users who choose investment solutions that better align with their overall retirement plans and objectives. For example, unless consumers have made an informed decision to do so they should not be invested in cash or cash-like assets. Therefore, these new investment pathways rules may lead to less non-advised consumers making bad decisions and potentially losing valuable growth from their pensions and will instead benefit from a better income in retirement. These rules are likely to come into effect in February 2021, so firms will need to ensure they have updated their operations to ensure they fully comply.

How We Can Help

If you are the operator of a personal pension and would like to understand how the changing rules affect your business please reach out to contact us at RiskSave by pressing the button below.