The FCA has published its focused post-implementation review on investment pathways. The review focuses on rationale and take-up, value, communications and asset allocation for investment pathways, and how these could impact consumer outcomes.
The FCA previously introduced investment pathways to address specific issues identified in the Retirement Outcomes Review (ROR), especially regarding consumer focus on accessing their tax-free cash. Many consumers were taking the most effortless path and entering drawdown with their existing provider, resulting in some providers defaulting consumers into cash or cash-like assets. These pathways aim to assist non-advised consumers in aligning their drawdown investments with their retirement objectives.
The review found that investment pathways are effectively addressing specific concerns identified in the ROR. By providing structured options, investment pathways prevent poor outcomes, such as consumers inadvertently choosing investments that do not align with their goals. Stakeholders generally view investment pathways as a positive intervention. However, take-up rates vary among different providers, influenced by differing market segments, firms communication strategies of investment pathways, and whether firms require consumers to use investment pathways. Communication approaches and investment strategies also vary, impacting consumer understanding and engagement. While the FCA is generally comfortable with charges in investment pathways, there are instances of firms charging above the suggested reference of 0.75%.
The FCA recognised that investment pathways focus on a specific point in retirement decision-making for non-advised consumers. Several initiatives are being implemented in addition to investment pathways to offer ongoing support throughout the pensions journey to enhance consumer outcomes:
- Consumer Duty: The Consumer Duty sets higher expectations for firms in terms of consumer care, support, product and services governance, and fair value. It emphasises the need for effective decision-making support for consumers accessing their pension savings;
- Behavioural Field Trials: Collaborative efforts with industry are underway to conduct behavioural field trials. These trials aim to identify effective touch points for engaging customers during the decumulation phase, contributing to a better understanding of consumer behaviour and preferences;
- Advice/Guidance Boundary: A review of the advice/guidance boundary, conducted jointly with the Treasury, seeks to ensure that firms provide appropriate support to customers accessing their pension savings and explore potential improvements within the existing framework. This review aims to address concerns related to firms being reluctant to providing support where customers are dealing with complex products or decisions as they are cautious of being too close to the boundary between regulated financial advice and guidance;
- Other initiatives: Additional initiatives include a thematic review on retirement income advice, the development of pensions dashboards, and the implementation of a value for money framework for DC pensions.
These initiatives collectively aim to improve consumer engagement, access to information, and the overall value consumers receive from their pension products and services.