Government's investment pathway tool 'not fit for purpose'

Government's investment pathway tool 'not fit for purpose'

The chief executive of pension consolidator PensionBee has criticised the Money and Pension Service’s investment pathway comparison tool for leaving out ‘major providers’.

In a letter to Maps chief executive Caroline Siarkiewicz, Romi Savova raised issues with the service’s investment pathways comparison tool claiming it was “highly misleading” and “not fit for purpose”.

The government guidance site aims to help non-advised clients choose an investment pathway and choose which product would be best suited to their needs.

Investment pathways were launched last month after the Financial Conduct Authority became increasingly concerned about non-advised retirees “sleepwalking” into having their money invested in very low-return cash funds.

But Savova raised issues with the way products were compared in the tool, saying Maps displayed “incomparable products side by side in a way that suggests they should be compared”. 

She said: “While we recognise that there are thousands of products in the market that could meet the criteria for the tool, and it is difficult to rank incomparable products by anything but charges, the decision to obfuscate other important features could be extremely damaging for consumers.”

Savova said this issue was illustrated most starkly in pathway three - which is equivalent to drawdown.

Some providers, such as Pensionbee, AJ Bell and Hargreaves Lansdown, took a "target returns" approach to this pathway, aiming to generate a predictable income.

But other providers took an "asset allocation approach", increasing the exposure to bonds and with no target return.

Savova said there was a similar issue with pathway four, which is aimed at those savers who wish to take all their cash within the next five years.

She said: "Some providers have suggested consumers should avoid investing altogether, keeping their money in cash instead. The cost of this is presented as £0, but of course the real returns of this product are most likely to be negative owing to inflation.

"These are just some of the examples in the tool that indicate it is grossly optimistic to expect a consumer to be able to evaluate whether a product is good or even comparable, relative to the other available options."

The comments came after LCP published research which showed stark variations in investment pathway charges and asset allocation, with some drawdown pathways having a 20 per cent exposure to equities and some having a 53 per cent exposure.

Missing providers

Savova also argued it was difficult for consumers to make better decisions about what to do with their pensions at retirement unless they knew who was offering investment pathways.

She therefore said it was “wholly unacceptable” that the investment pathways of major providers still did not appear on Maps’ tool despite a month having passed since its launch. 

According to Savova the providers missing from the tool include AJ Bell, LV, Old Mutual and Vanguard.

She said: “Participation in the tool should not be optional when it was created for the sole purpose of understanding and comparing investment pathway options, which became compulsory on February 1, 2021 for all pension providers offering non-advised drawdown products.”