Investment pathways not a substitute for professional financial advice - Aegon

Pension investment pathways introduced by the Financial Conduct Authority will provide greater support for those individuals navigating drawdown alone, but should not be viewed as a substitute for financial advice, Aegon pensions director, Steven Cameron, has warned.

The pathways, which come into use from 1 February, are expected to provide greater support to customers with defined contribution (DC) pensions who decide to take income via drawdown and decline financial advice.

Users will be asked to identify which of the four retirement scenarios provided best matches their own circumstance, with pension providers to provide four investment pathways designed to be broadly appropriate for these scenarios, in turn.

However, Cameron noted that the options outlined are all five-year scenarios, warning that for some people, including individuals over 55 who may have lost their job as a result of the pandemic, it may be difficult to think as far ahead as this.

He also emphasised they cannot replace the benefits of professional advice, explaining that an adviser would examine each individual’s circumstances, with personalised recommendations on where to invest and how much income can be safely taken.

“Advisers can also review the best approach on an ongoing basis, reflecting changes in investment conditions or personal circumstances,” he added.

The pathways, meanwhile, will not look at an individual’s full personal circumstances and attitude to investment risk, with no ‘personal recommendation’ of which pathway to choose.

Furthermore, Cameron emphasised that whilst pension drawdown offers huge flexibility to remain invested, it comes with far greater risk than, for instance, an annuity.

In particular, he highlighted potential adequacy concerns, noting that the investment pathways will not help guide users in how much income to take from their pension pot at any time.

He stated: "In drawdown, decisions have to be taken regarding not just where to invest but also how much income to take out, and both these decisions should be reviewed regularly.

"Many will be relying on their drawdown pot to provide an income throughout their life, so taking out too much too early might mean their pot will run out before they die. And of course, none of us know exactly how long a life we have ahead of us.

“Investment pathways will not provide any help in deciding how much income to take."

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