Interactive Investor

There’s only one pathway, and that’s your own...

24th January 2022 14:55

Rebecca O'Connor from interactive investor

...or so it appears from Investment Pathways uptake, one year on.

The one-year anniversary of Investment Pathways is on February 1 and an interactive investor review of customer uptake so far suggests the scheme is yet to capture the imagination of people entering drawdown.

Interactive investor data shows that only 5% of customers entering drawdown in the year since launch said they would consider one of the four options available through Investment Pathways. Only 1% went on to purchase one.

Among those who have chosen a Pathway instead of their previous investments, the most popular choice has been Investment Pathway 1, followed by Pathway 3. Interactive investor customers are yet to take up either Pathway 2 or 4.

The low uptake, together with strong evidence of a preference for just two of the four Pathways, suggests that the scheme is ripe for review on its first birthday.

Interactive investor Investment Pathways

Pathway

Purpose

Fund

Charge

1

I have no plans to touch my money in the next five years

Vanguard LifeStrategy 60% Equity

0.22%

2

I plan to use my money to set up a guaranteed income annuity within the next five years

iShares Core UK Gilts ETF

0.07%

3

I plan to start taking my money as a long-term income within the next five years

Vanguard Target Retirement Fund 2020

0.24%

4

I plan to take out all my money within the next five years

Royal London Short Term Money Market Fund

0.10%

The Financial Conduct Authority (FCA) implemented Pathways as an answer to the problem of people withdrawing their retirement savings from their pension and keeping it all in cash, where it faces the ravages of inflation. Of the six million people aged over 65 who have ISAs, more than three million have cash ISAs, according to a recent FOI by LCP.

The idea is that by following the Pathway that most closely matches someone’s retirement goals, those who are less confident making investment decisions will be able to remain invested in the stock market but without having to face the personal responsibility of the right fund choices.

At the time of launch, interactive investor expressed support for the initiative, but also doubts that the scheme would be appealing for its self-directed customer base.

Becky O’Connor, Head of Pensions and Savings, interactive investor, said: “Our initial theory that Investment Pathways were unlikely to be popular with the majority of our pension customers appears to have been proven correct.

“We continue to support the principle of the initiative but would urge the FCA, with one year of industry data under its belt, to consider reviewing the Pathways options as they stand, as it appears that Pathways 2 and 4 in particular are not even piquing the interest of a small minority of our customers, suggesting that very few people plan to take an annuity or take out their whole pension in the short term.

“It makes sense that Pathways 1 and 3 would be the most relevant. The reason someone might plan to start taking an income within five years or after five years might depend on their age, work status, salary and pension pot size.

“Many of our customers who are 55 or older have relatively large pension pots and are likely to be drawing down an initial lump sum for a particular purpose with no wish or need to touch their SIPP again for some time and so in this context, Pathway 1 might make sense. That said, some who perhaps wish to retire early, in their fifties, might choose Pathway 3 to facilitate early retirement.”

Interactive investor announced last week that Morningstar has taken over the management of ii’s lists, including Investment Pathways. Morningstar now performs the analysis and monitoring of Pathways and will conduct the annual review.

Notes to editors:

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