The Department for Work and Pensions (DWP) “has some catching up to do” on whether occupational DC schemes that offer drawdown should be required use investment pathways.

In a panel discussion at the PLSA Investment Conference, DWP senior policy manager, investment and governance, David Farrar said: “There are no mandatory pathways legislation in occupational DC, even though they are up and running.

“Our rationale for that has been that there hasn't been a huge amount of in-scheme drawdown in DC where it is being offered.

“But we recognise that is changing quite fast with things like consolidation into consultant-led master trusts, who are understandably keen to keep the money in retirement rather than pushing people over to a GPP or a Sipp.”

In a poll of audience members which asked: 'Where occupational schemes offer drawdown, so you think they should offer investment pathways?', 71 per cent said that they should either offer the pathways of explain why not.

A further 20 per cent said they should be required to offer pathways outright, while 10 per cent said 'no – they should be free to do something different'.

Farrar continued: “We have some catching up to do, its kind of like the market has moved on and we need to decide whether there is an issue here or whether this is going to naturally evolve.

“It feels like a no-brainer to me that solutions that everyone takes financial advice are eutopian and that isn't going to work. So there is a need for defaults, the question is whether we legislate for them.”

Investment pathways were introduced by the Financial Conduct Authority in July 2019, with the aim of helping consumers who enter drawdown to make investment decisions that meet their needs in retirement.

On the topic of member engagement, Farrar added that it is “not necessarily a problem” that people don't engage for “large parts of their saving period”.

“What is important is that they engage at certain times, especially in the run up to retirement,” he concluded.

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