Comparing FCA 'Pathway 1' decumulation solutions

With the removal of mandatory annuitisation, individuals were granted much greater flexibility in how they accessed and managed their defined contribution (DC) pension savings. However, this newfound freedom also brought challenges, as many people felt unqualified or ill-equipped to make informed decisions about their retirement income.

The pathways were therefore introduced to provide structured, regulated options that were intended to simplify decision-making, helping retirees select an approach that best fits their intentions for accessing their pension funds.

By segmenting savers into four clear categories based on their expected use of their pension savings, the FCA aimed to address the lack of quality decumulation options and ensure that retirees have accessible, understandable choices for securing their financial future.

The four pathways are set out below:

Pathway 1: "I have no plans to touch my money in the next five years" - This pathway is for those who wish to keep their pension savings invested and are not planning to make any withdrawals in the short term.
Pathway 2: "I plan to use my money to set up a guaranteed income (annuity) within the next five years" - This pathway is suitable for those who intend to purchase an annuity soon and want their money invested in a way that aligns with this goal.
Pathway 3: "I plan to start taking my money as a long-term income within the next five years" - This pathway is for those planning to draw down their pension savings gradually to provide a regular income over the long term.
Pathway 4: "I plan to take out all my money within the next five years" - This pathway is aimed at those who intend to withdraw all their pension savings within a short period.

Pathway 1 performance

In this article we focus on the first pathway, which a saver should choose if they identify with the phrase "I have no plans to touch my money in the next five years".

The performance of Pathway 1 products from various providers has been analysed below. We looked at each strategy for a member that is 70 years old today (so 65 five years ago) and tracked the monthly returns of each strategy using the actual experienced returns of the underlying funds up to the end of quarter three 2025 (though noting that some of these funds may not have been used as a Pathway 1 product for the full five years).

We assumed a starting pot size of £500,000 and that members neither contributed to nor made any withdrawals from their pot during this five year period. The following chart tracks the change in pot size over the five year period.

Changes in pot value over the last five years
Source: DWA

There is an over £277,000 difference in outcome between the strongest performer (Utmost) and the lowest performer (Aegon). Members in Utmost would have seen an over 50% boost to their pot size compared to members in Aegon. This monumental difference appears to predominantly come down to a combination of equity exposure and government bond exposure.

For Pathway 1 Utmost invests in the Utmost Multi-Asset Growth fund, which targets a 60-80% equity allocation, and at time of writing in November 2025 was sitting at just over 70% invested in equities, with around 5% in UK government bonds and the rest in other fixed income products.

In contrast the September 2025 factsheet for Aegon TargetPlan Growth Pathway has an equity content of around 30%, with just under 28% invested in UK gilts and around 22% invested in international government bonds.

Over the last five years, despite some upsets, the dominant investment themes have been ones of large cap equity growth, with particular success for large US tech stocks. Within this period, 2022 was one of the worst years for financial markets on record with rapidly rising interest rates hammering fixed income, with UK government bonds being one of the worst affected asset classes. However many would say the last five years have been unusual for markets, and that as volatility returns diversification may be more beneficial.

What is an appropriate level of risk for Pathway 1 investment?

All this raises the question, what is an appropriate level of risk for a five-year investment and therefore what kind of product best suits Pathway 1?

One problem is defining the parameters of Pathway 1. If a member invests in Pathway 1, one year later should we still assume that they have no plans to touch their money for the next five years or should we assume that they now may only have four years left before they touch their money? This problem can be even more pronounced in the other Pathways but still bares considering for Pathway 1. None of the considered Pathway 1 options implement any kind of lifestyling which implies that the common belief is that until such time as a member chooses an option there are always at least five years before they intend to access their pot.

A five-plus year timeframe would typically be seen as a medium-term horizon. It is a timeframe over which it is reasonable to assume that a growth like portfolio would see positive returns. That there is enough time to recover from any near term market events. This would tend to suggest a slightly riskier portfolio than one might expect for a retiree.

The counter question, however, is how reliable do we believe the saver's own assessment of their needs is? Many people do not know when they are going to begin accessing their retirement savings until very shortly before they retire or they need the money. Is it the responsibility of the provider to ensure that a saver who suddenly realises their timeframe is shorter than expected is not taking on too much risk to accommodate this?

If the products are to be workable it makes sense that the provider must be able to rely on a member's assessment of when they will access the money, any other outcome risks causing detriment to members who have a sufficiently long investment timeframe. Ultimately the solution probably lies in better saver education, and a wider array of clearly defined options to better target specific outcomes.

Pete Osthwaite is head of DC trustee solutions & ESG research at Dean Wetton Advisory