Investment Pathways
What are investment pathways?
Investment pathways help you choose the right investment strategy for your pension. They match your goals for the next five years with an investment option which could help you get there. You can switch out of a pathway whenever you want, but be sure to understand how it might impact your money.
The Pathways don’t consider your personal situation or how much risk you’re comfortable with. You should aim to pick the one that best fits your plans, but it might help to think about:
Your ability to wait for markets to recover if they fall.
How getting back less than you invest would affect your personal finances.
Do you have other sources of income which you can rely on if things don’t go to plan?
Important information - What you do with your pension is an important decision that you might not be able to change. Check that you're making the right decision for you and that you understand all your options and their risks. The government's free and impartial Pension Wise service can help you and we also offer personal advice. You can 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 objective that best fits your goals. Invest in the fund option if you’re happy with how it might perform and its risks.
The four pathway objectives are:
BlackRock MyMap 4 fund
Description
This pathway is designed to grow your money for the next five years and beyond.
It spreads your money between different investments, typically with around half in bonds (loans to companies and governments) and half in company shares. The fund can also hold other types of investment, such as gold, other commodities, or property. Holding a balanced mix of investments helps to spread the risks. It's likely to be lower risk compared to a fund which focuses more on investing in shares, for example a pension default fund or a global fund.
The fund aims to limit the ups and downs of investing over 5-year periods. This balanced risk approach might mean the fund offers some shelter when the stock market falls but smaller returns in better times. The fund offers a diverse investment in one place at a competitive annual charge.
Risks
Your money is invested - you could get back less than you started with.
If you plan on investing for longer than five years, you may be able to get a better return if you are happy to take a higher risk approach, although there are no guarantees.
The fund invests in emerging markets and uses derivatives, both of which add risk.
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
The fund typically invests in a balanced mix of shares and bonds and a small amount in commodities. It invests globally to spread out your investments.
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 aim means the amount invested in this fund should have the same annuity purchasing power, or similar, when you decide to purchase an annuity in the future, regardless of what happens to annuity rates in between.
If you don’t expect to buy an annuity within the next five years, you should consider whether a fund designed to offer long-term growth or income is better suited to your goals.
Remember - you need to buy an annuity when you're ready. This pathway does not provide an annuity automatically.
Risks
Your money is invested - you could get back less than you started with.
There is no guarantee that your annuity purchasing power will be maintained.
The fund uses derivatives which adds risk.
Volatility: How its value might change
If annuity rates go up, the fund price is likely to go down.
If annuity rates go down, the fund price is likely to go up.
The price movements can be sharp sometimes, so you may see the value of your pension change considerably.
Diversification: Where and how it invests
The fund typically invests around half in developed nation government bonds. It tends to favour those issued by the UK government because annuity rates are closely related to how these bonds perform.
The other half is typically invested in other bond types which can be riskier. This helps to spread out the investment and deliver on the fund's aims.
Baillie Gifford Monthly Income Fund
Description
This pathway aims to provide a resilient income from your investments for the next five years and beyond.
The fund invests with the aim of generating income that keeps up with inflation over five-year periods. The fund pays out the income produced by its investments and manages the payments so your income is smoothed out over the year.
The focus is on preserving the money value of the income payments to give more certainty over the income produced. As a general guide, we expect the income to be around £4 per £100 invested per year. The income is not guaranteed. The fund also aims to grow the value of your initial investment in line with inflation over 5-year periods, but this is not guaranteed.
To subsidise your income, you can sell parts of your investment. If you plan to do this, the timing of your sales can have a big impact on how long your money lasts in retirement – especially if the stock market falls in the early years of you drawing income. For that reason, you should take financial advice if you are interested in this approach.
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.
The fund may not offer enough income for your needs.
You could run out of money if you sell units in your investment to generate more income.
The fund invests in emerging markets, high-yield bonds and uses derivatives, all of which add risk.
The fund takes its charges from the underlying investments instead of the income they produce – this can increase the income on offer but reduce the potential for 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 wider stock market, although there are no guarantees.
Diversification: Where and how it invests
The fund spreads its investments into three broadly equal buckets: company shares, bonds, and real assets (such as infrastructure and property). This approach creates three different sources of income, which improves its resilience over time.
Uninvested (cash - no fund)
Description
This pathway gives you easy access to your money over the next five years.
It won’t be invested, 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.
Risks
Inflation can reduce the buying power of your money.
The longer you leave it, the bigger the impact inflation can have.
Volatility: How its value might change
The value of your cash won’t fall. It will rise slowly as interest is added.
Diversification: Where and how it invests
This pathway will not invest. Your money is held as cash.
Remember, the pathway options aren’t personal advice. It's really important that you check that your chosen pathway matches your own goals before you invest. If you’re unsure, seek advice.
As a drawdown pathway investor, our Independent Governance Committee (IGC) works to protect your interests. They assess whether you’re receiving value for money each year. Find out more on how the IGC protects pathway investors.
At a glance
They’re matched to funds or options aiming 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 risk or ability to suffer losses.
How is ESG integrated into Investment Pathways?
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 also meet the managers on an annual basis (or more often where needed). Following each fund manager meeting, we consider whether the manager is fully taking account of the ESG risks applicable to their portfolio, and if they’re supported to do so by the fund group they work for. We also consider the level of risk posed to the portfolio by climate change. Our views are shared with investors through annual fund updates.
We outline how each fund integrates ESG analysis below.
This fund invests in a range of tracker funds and ETFs (exchange traded funds) managed in-house at BlackRock.
The BlackRock MyMap 4 fund is not managed to an ESG objective, but 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.
BlackRock was an early signatory to the Principles for Responsible Investment and has offered ESG integrated funds for years. In January 2020, it made a company-wide commitment to ESG, promising to expand ESG-focused ETFs, screen thermal coal companies from actively managed funds, and require all fund managers to consider ESG risks.
The Investment Stewardship Team aims to vote at all meetings where it has authority to do so and engages with companies alongside fund managers. However, BlackRock has faced criticism for not supporting enough shareholder resolutions on climate change in recent times – this is something we’re watching closely.
This fund invests across government and investment grade corporate bonds, aiming to track the performance of a custom benchmark, which is not ESG-focused. However, although 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.
Fidelity has committed to developing its firm-wide approach to ESG in recent years. The firm developed a structured engagement program, which allows it to be more systematic in its engagement on environmental and social issues, became involved in more collaborative engagement initiatives and introduced ESG data into fund managers’ quarterly reviews to raise awareness of ESG issues. The firm also bolstered its dedicated ESG team, which writes regular ESG reports on companies held by Fidelity fund managers.
The fund applies a screening process to avoid companies that are subject to UN Security Council sanctions or non-compliant with the UN Global Compact initiative. They also screen out companies that have revenues above particular thresholds coming from fossil fuel extraction and production, thermal coal distribution, tobacco production, controversial weapons and armaments.
As part of their company assessments, the managers consider a number of different sustainability metrics and assign each company an overall score. This helps them to compare different companies’ sustainability credentials. Those that are considered leaders within their sector are preferred. However, they won’t invest in the lowest scoring companies.
All Baillie Gifford funds are run with a long-term investment horizon in mind – they see themselves as long-term owners of a business, not short-term renters. Dedicated ESG analysts sit with and report into their respective investment teams, and the firm's ESG efforts are supported by a dedicated climate specialist team, an ESG Services team (responsible for voting operations and ESG data) and an ESG Client team (responsible for ESG-related client communications). Individual investment teams are responsible for voting and engagement for the companies they invest in.
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