What Are Investment Pathway Funds?

Published / Last Updated on 20/02/2021

The Financial Conduct Authority has imposed new rules on pension companies and pension providers from 1 February 2021.

Pension providers must take additional action with:

  • clients that are setting up new Flexible Drawdown pension schemes without financial advice or
  • clients with an existing flexible drawdown pension where advice may or may not have been given at the start but subsequently look to take further withdrawals without advice

Pension Providers Must Offer an Investment Pathway Fund based upon the client being classed in one the following sections:

  • Option 1:  I have no plans to touch my money in the next five years
  • Option 2:  I plan to set up a guaranteed income in the next five years
  • Option 3:  I plan to start taking a long=term income within the next five years
  • Option 4:  I plan to take out all my money in the next five years

Pension providers must then offer the client an Investment Pathway Fund suitable for each of the above profiles.

In connection with the fund, the provider must supply information about the fund:

  • Describe the risk nature of the fund
  • Remind clients that they can shop around
  • Remind clients that they can use the Money and Pension Service comparator
  • If a client chooses not to use the suggested investment pathway fund, they can choose their own investments or indeed remain with existing funds.
  • If clients select funds (or already have funds) that have 50% or more in cash or cash type funds, the pension provider must check that the cleint has made a definite decision to be invested in cash.  A warning must be issued to clients that inflation may erode their cash funds and offer generic examples of this.

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