Nearly 1 in 3 financial advisers believe that the FCA’s new ‘Investment Pathways’ pension reforms - which come into effect today - will cut demand for retirement advice although some expect a boost to advice demand.

Overall, adviser research for Aegon found mixed views on the impact of the pathways which are designed to help non-advised pension savers avoid leaving their money in cash.

Among advisers responding to the survey:

• 44% said investment pathways will have no effect on demand  
• 32% said it will reduce demand 
• 11% said it will increase demand  
• 1% said it will reduce demand significantly 

The investment pathway reforms were due to be implemented last year but were delayed due to the Coronavirus pandemic.

They aim to ensure people in drawdown do not hold cash for long periods of time by nudging them towards a series of ready-made ‘investment pathways.’

Some have criticised the move as opening the door to providers selling expensive in-house funds and risking attention from claims management companies.

Under the reforms, people who enter drawdown or transfer funds to a new drawdown account will be offered ready-made pathways based on their answers to questions about how they plan to spend their savings and which of four retirement scenarios best matches their plans.

The four scenarios are:

• “I have no plans to touch my money in the next five years.”    
• “I plan to use my money to set up a guaranteed income (annuity) within the next five years.”
• “I plan to start taking my money as a long-term income within the next five years.”
• “I plan to take out all my money within the next five years.”

Pathways will need to be offered to non-advised drawdown customers each time they make a subsequent investment decision.

Steven Cameron, pensions director at Aegon, said: “The idea behind investment pathways is to help reduce the potential for non-advised individuals to make unwise investment choices, such as taking on too much or too little investment risk. However, it will not provide any help in deciding how much income to take, and unlike with advice, there’s no ‘personal recommendation’ of which pathway to choose. 

“Going back five years, very few individuals considered drawdown without first seeking professional advice but the financial regulator has been concerned that many more are now opting for drawdown without advice.

“Our research shows that advisers have mixed views about whether pathways will lead to more or fewer individuals seeking retirement advice. 44% of advisers say the pathways will have no effect on the demand for advice, although 32% say it will reduce demand a little. Mixed views are to be expected as much will depend on how pathways are presented and explained to customers, which won’t be clear until they are up and running.  

“Interestingly, 11% of advisers expect pathways to increase demand for retirement advice, as by going through the pathways process, customers gain a better understanding of the importance of the choices they’re making, and the limited help pathways offer. We’d see this as a positive outcome, as professional advice will offer a personal recommendation on not just where to invest but also on how much income can safely be taken to last throughout life or meet other retirement objectives. 

 “While investment pathways will offer some help to those who choose to ‘go it alone’, it’s really important for those approaching retirement to understand that they won’t replace the benefits of taking professional financial advice.” 

 • Aegon research with Next Wealth was conducted with 212 financial advisers in December.