A review of customer uptake by Interactive Investor indicates that its Investment Pathways scheme has been ignored by investors.
Interactive Investor data indicates that only 5 percent of customers entering drawdown in the year since launch have considered one of the four Investment Pathways options. Of those, only one per cent went on to buy one.
Most individuals who opted to replace their previous investments with a Pathway chose Investment Pathway 1, followed by Investment Pathway 3. Interactive Investor customers have yet to use Investment Pathways 2 and 4.
| Pathway | Purpose | Fund | Charge |
| 1 | I have no plans to touch my money in the next five years | Vanguard Life Strategy 60% | 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% |
Based on the low participation rate as well as the preference for two out of four Pathways, the scheme is due for an evaluation at the end of its first year.
Pathways was created by the Financial Conduct Authority as a solution to the problem of people withdrawing their retirement savings from their pension and keeping it all in cash, where it is vulnerable to the ravages of inflation. According to a recent LCP FOI, more than 3 million of the 6 million people over the age of 65 who have ISAs have cash ISAs.
The idea is that by following the Pathway that most closely matches a person’s retirement goals, those who are less confident in making investment decisions will be able to stay invested in the stock market without having to face the personal responsibility of selecting the right funds.
Interactive Investor head of pensions and savings Becky O’Connor says: “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.”
