Investment Pathways

What are investment pathways?

Investment pathways are for people who have thought about their pension drawdown goals but may be unsure how to achieve them.

Each pathway matches potential goals with an investment option for the next five years, and beyond in some cases. You're not locked in for any amount of time - you can leave the pathway if you want to, but you should be clear on how doing so might affect your money.

While they're tailored to specific goals, investment pathways don't take your circumstances into account, or how much risk you're comfortable with. You should choose the one which best matches your plans.

Important information - What you do with your pension is an important decision that you might not be able to change. You should check you're making the right decision for your circumstances and that you understand all your options and their risks. The government's free and impartial Pension Wise service can help you and we can offer personal advice if you’d like it. You can also shop around and compare pathways from other providers using the Money Helper tool. The information on our website isn't personal advice.

How it works

Choose the pathway that best matches your drawdown goals and, if you're happy with the way it could perform and the associated risks, invest in the matched fund or option.

The four pathway objectives are:

Pathway 1 - I have no plans to touch my money in the next five years
BlackRock MyMap 4 fund

Description

This pathway is designed to grow your money for the next five years and beyond.

It's diversified and typically invests around half its value in bonds (loans to companies and governments) and company shares. The fund can also hold other types of investment, such as gold or other commodities, or property. Holding a broad spread of investments helps to spread the risks. It's likely to be lower risk compared to a fund which focuses more on investing in company shares, for example a pension default fund or a global fund.

It tries to limit the ups and downs of investing. The fund aims to invest in a way which reduces the likelihood of seeing large fluctuations in returns over 5-year periods. This might mean the fund offers some shelter when stock markets falls, but it also means gains are less likely to keep up with the shares in better times. The fund gives the potential to grow your money over the long term without taking as much risk as the wider stock market. The fund offers access to a diverse investment portfolio in one place at a very competitive annual charge.

Risks
- Your money is invested - you could get back less than you started with
- The fund may use derivatives to reduce the impact of currency returns. This approach can add risk where it’s used
Volatility: How its value might change
- Aims to limit the variation in investment returns over time
- Can still go up and down, possibly by as much or more than the stock market
Diversification: Where and how it invests
Over 80% of the fund is invested in other funds, which largely invest in:
- Shares
- Corporate and government bonds
- Commodities
A maximum of 20% is uninvested and held as cash.

View factsheet including charges View Key Investor Information
Pathway 2 - I plan to use my money to set up a guaranteed income (annuity) within the next 5 years
Fidelity Pre-Retirement Bond fund

Description

This pathway invests your money until you're ready to buy an annuity in the next five years.

The fund aims to invest in bonds that will move in line with changing annuity rates. This means you should be able to get the same level of income from your annuity in the coming years as you can today.

If you don’t expect to buy an annuity within the next 5 years, you should consider whether a fund designed to offer long-term growth or income is better suited to your goals.

Choosing this pathway does not give you an annuity – when you're ready, you’ll need to sell this fund and buy an annuity. You shouldn't plan to be invested in this fund for longer than five years without buying an annuity.

Remember - you need to buy an annuity when you're ready. This pathway does not provide an annuity.

Risks
- Your money is invested - you could get back less than you started with
- Other factors aside from bond rates can change annuity rates (not considered in this fund)
- The fund may use derivatives to reduce the impact of currency returns. This approach can add risk where it’s used
Volatility: How its value might change
- Will move according to changes to annuity rates, which can go up or down
Diversification: Where and how it invests
Invests in:
- Investment-grade bonds
- Government bonds, primarily issued by the UK
- May invest smaller amounts in other, more risky types of bond
- Cash
View factsheet including charges View Key Investor Information
Pathway 3 - I plan to start taking my money as a long-term income within the next 5 years
Baillie Gifford Sustainable Income fund

Description

This pathway aims to provide a resilient income from your investments for the next five years and beyond.

The fund achieves diversification by spreading its investments into three broadly equal buckets: company shares, bonds and real assets (such as infrastructure and property). Diversifying the sources of income improves its resilience over time. Investments for the fund are selected based on their sustainability characteristics, with a strong focus on avoiding investment in companies which are not aligned to the green economy, and identifying companies with sustainable business models.

The fund aims to deliver a resilient income, which keeps up with inflation over five-year periods. The fund pays out the ‘natural yield’ – income produced by the investments – on a monthly basis, so investors can expect a smooth monthly income. The focus is on preserving the monetary value of the income rather than a percentage ‘yield’, although we expect the income to be around 4% in percentage terms. The income is not guaranteed. The fund also aims to grow its capital value in line with inflation too, but this is also not guaranteed.

You could run out of money if you sell parts of your drawdown pot to boost your income. If you do plan on taking more than the natural yield, and drawdown is your main source of money in retirement, you should take financial advice.

Remember – you need to set up your income instruction separately. You can do this in your online account after we’ve processed your application.

Risks
- Your money is invested – you could get back less than you started with
- Natural yield may not offer enough of an income for your needs – you could run out of money if you take more
- The more you take outside of the natural yield, the more likely you are to run out of income/money later in retirement
- Income is not guaranteed
- The fund can invest in emerging markets and use derivatives, which add risk
- The fund takes its charges from capital, which can increase the income on offer but reduce the potential for capital growth
Volatility: How its value might change
- The fund’s value will go up and down, typically by between half and two-thirds as much as the broader stock market although there are no guarantees.
Diversification: Where and how it invests
Mostly invests in funds, which invest in:
- Shares
- Bonds
- Property (indirectly through shares or funds)
- Infrastructure (indirectly through shares or funds)
View factsheet including charges View Key Investor Information
Pathway 4 - I plan to take out all my money within the next 5 years
Uninvested (cash - no fund)

Description

This pathway gives you easy access to your money over the next five years.

Your money stays as cash - it is not invested in any way - so while it's easier to take out, it won't grow apart from any interest added – see the current level of interest.

Its value could also be affected by inflation. Because of this you should have a clear idea of when you'll use your money, and not leave it uninvested if you won’t need to use it in the next five years.

Any cash you have in your drawdown account will automatically be classed as part of this pathway if you choose it. This includes money you already have and money raised from selling investments. You'll be able to see this in your online account.

Remember - cash in your drawdown account will automatically be classed as part of this pathway.

Risks
- Inflation can affect its 'real value'
- The longer you leave it, the bigger the impact inflation will have
Volatility: How its value might change
- Its monetary value will not change apart from any interest added
- Its real value is likely to reduce as a result of inflation
Diversification: Where and how it invests
- Uninvested (cash)

We've chosen investment options we think will help meet each goal. For the three matched funds, we considered everything from where your money goes to how much its value is likely to change, and the funds' sustainability credentials.

But, as the pathways aren’t personal advice, it's really important you check your chosen pathway matches your own goals before you invest. If you’re not sure of the suitability of an option for your circumstances, seek advice.

Our Independent Governance Committee (IGC) works to protect your interests as a drawdown pathway investor and assess whether you’re receiving value for money. Find out more on how the IGC protects pathway investors.

At a glance

They’re matched to funds or options most likely to achieve a specific goal
Choose them based on what you want to achieve in the next five years
They don’t consider your circumstances, attitude to or capacity for risk

How do Pathways consider Responsible Investment?

We believe investing with Environmental, Social and Governance (ESG) considerations in mind simply makes good investment sense. Issues related to the way a company is managed, or its effect on the environment and society can cause reputational damage, impact profits and drag down a company’s share price. We believe proper ESG analysis can help investors avoid and mitigate these issues, thereby improving investment returns.

When selecting funds for our Investment Pathways solution, we considered the way those funds integrate ESG analysis. We're satisfied that the managers of all our selected funds are both aware of and taking seriously the ESG-related risks that may impact their portfolios. We expect those managers to use their votes and engage with the companies they invest in to highlight potential areas of improvement to management, where it is in the interests of long-term investors.

We outline how each fund integrates ESG analysis below.

BlackRock MyMap 4 fund

This fund invests in a range of tracker funds and ETFs (exchange traded funds) managed in-house at BlackRock.

A number of the funds held in the portfolio apply 'ESG tilts', meaning they increase investments in companies that score well on ESG measures, and reduce investments in those that don’t. Some also exclude companies in the most controversial industries. The team's committed to investing in an ESG fund option, unless there is a reason not to – for example because it is higher cost than a non-ESG integrated alternative.

BlackRock's dedicated Investment Stewardship team is responsible for voting and engaging with companies on investors' behalf. They also participate in more than 40 initiatives to advance good practice and share perspectives on ESG integration.
Fidelity Pre-Retirement Bond fund
This fund invests across government and investment grade corporate bonds, and ESG analysis is embedded into the managers' research process.

The managers' ESG analysis is informed by Fidelity's own sustainability ratings system, which leverages insights from specialist analysts. The fund won't invest in bonds from issuers with revenues from certain activities:
- Controversial weapons
- Nuclear weapons*
- Semi-Automatic weapons*
- Thermal Coal, Oil Sands, Arctic Oil & gas*
- Tobacco*
- Companies who fail to uphold international standards relating to labour, human rights, the environment and anti-corruption
- Government bonds issued by countries that are performing poorly on three principles relating to governance, respect for human rights and foreign policy
*5% revenue threshold applies.

Additionally, the fund will maintain at least 70% of its assets in bonds issued by companies who meet minimum sustainability characteristics according to an independent ratings agency.

While bond investors do not have voting rights, the managers and their team engage with the companies they invest in. They feel this helps them glean insights that aren't available elsewhere, and encourage positive change, which should add long-term value.
Baillie Gifford Sustainable Income fund
All of Baillie Gifford's funds are run with a long-term investment horizon in mind, making governance and sustainability particularly important issues to the company. The managers of the Baillie Gifford Sustainable Income Fund use an “impact, ambition, trust” framework to guide their ESG approach, which considers the ESG impact of the investment, how ambitious a company’s plans are to reduce their impact and the level of conviction they have in the company’s ability to deliver on its commitments.

The fund’s ESG approach has two pillars. First, the fund applies revenue and norms-based filters to exclude investment in certain areas:
- Fossil Fuel extraction & production*
- Thermal coal distribution*
- Tobacco production*
- Any link to controversial weapons
- Armaments*
- Violators of the United Nations Global Compact
- Countries subject to sanctions by the United Nations Security Council
*Revenue thresholds apply.

From the remaining universe, Baillie Gifford assess the sustainability risks of companies in the portfolio and give every constituent an ESG score. The fund managers consider ‘what good looks like’ for each asset class - company shares, bonds, and real assets - to create the most meaningful ESG assessment for the fund’s holdings. Every investment in the fund is ranked on a sustainability scale of 0 to 4, with any investment with a score of 0 being excluded from the fund.

The fund's managers and analysts from the Governance and Sustainability team regularly engage with companies they hold shares in to identify problems and suggest areas for improvement. The team also use their right to vote at shareholder meetings to drive positive change from within.

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