Decumulation decoded: how pension reform is reshaping retirement income

As with any investment, your capital is at risk and any income is not guaranteed.

The UK’s retirement market stands once again at the brink of profound change. The FCA’s December 2024 consultation paper – creatively titled CP24/27: Advice Guidance Boundary Review: Proposed Targeted Support Reforms for Pensions – paired with the upcoming Pensions Schemes Bill 2025, represents a regulatory double act poised to transform how retirement income solutions are delivered.

This approach represents a critical evolution beyond existing Pension Freedoms (2015) legislation, where retirees frequently struggled with overwhelming choice, leading to premature withdrawals or complete indecision.

Guided retirement: addressing the advice gap

The Pension Schemes Bill 2025 introduces a statutory “Guided Retirement” duty by 2027-28, effectively creating default retirement income 'pathways'. Imagine an ‘auto-enrolment’ style approach, but for the critical stage of turning accumulated pensions into sustainable income.

Targeted support: bridging the gap

In tandem, the FCA’s CP24/27 introduces “targeted support” – a new regulatory concept offering tailored suggestions without crossing into regulated advice territory. Initially focused on pensions due to the significant risks involved in retirement decisions, the targeted support regime will eventually expand to other investment areas. For advisers, this means the ability to offer meaningful, tailored insights without crossing regulatory thresholds.

Monthly Income Fund: a natural fit

Baillie Gifford’s Monthly Income Fund aligns perfectly with these regulatory changes. Designed with simplicity, liquidity, and transparency in mind, it aims to provide stable, inflation-linked monthly income – a key requirement in this evolving regulatory landscape.

Utilising our global investment outlook and flexible tactical asset allocation, the Fund seeks sustainable, long-term income growth rather than short-term yield chasing. This disciplined approach explicitly addresses regulatory concerns by focusing on reducing income volatility and delivering steady monthly payouts.

The advantage of ‘natural income’

Our ‘Natural Income’ strategy offers an intuitive solution:

• Stable income: The fund’s natural income stream aims to serve as a safe withdrawal guide, eliminating guesswork.
• Predictability: Avoids reliance on volatile market performance or forced asset sales.
• Competitive edge: Offers superior predictability and simplicity compared to segmented pots, capital withdrawals, or cash buffer strategies, without the rigidity associated with annuities.

Every retiree has unique goals, but for those prioritising stability, transparency, and simplicity, the Monthly Income Fund is designed as a one-stop solution. Already adopted by prominent platforms for their decumulation pathways, it’s specifically built to help retirees manage their financial future confidently.

Ready for tomorrow

Will these regulatory initiatives fundamentally reshape retirement income markets? Undoubtedly. Will they create initial complexity? Probably. But amid these challenges, trustees and advisers can find clarity, confidence, and resilience through the Baillie Gifford Monthly Income Fund.

Past performance

Baillie Gifford Monthly Income Fund 

Annual past performance to 30 June each year (net%)

Source: FE, Revolution. Net of fees, total return in sterling. *Investment Association Mixed Investment 40-85% Shares Sector

Past performance is not a guide to future returns.

The Fund has no target. However you may wish to assess the performance of both income and capital against inflation (UK CPI) over a five-year period. In addition, the manager believes an appropriate performance comparison for this Fund is the Investment Association Mixed Investment 40-85% Shares Sector.

Important information and risk factors

This recording was produced and approved in July 2025 and has not been updated subsequently. It represents views held at the time and may not reflect current thinking.

The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, and Baillie Gifford and its staff may have dealt in the investments concerned.

Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs.

Investment markets can go down as well as up and market conditions can change rapidly. The value of an investment in the Fund, and any income from it, can fall as well as rise and investors may not get back the amount invested.

Market values for illiquid securities which are difficult to trade, or value less frequently than the Fund, such as holdings in weekly or monthly dealt funds, may not be readily available. There can be no assurance that any value assigned to them will reflect the price the Fund might receive upon their sale. In certain circumstances it can be difficult to buy or sell the Fund’s holdings and even small purchases or sales can cause their prices to move significantly, affecting the value of the Fund and the price of shares in the Fund.

Derivatives may be used to obtain, increase or reduce exposure to assets and may result in the Fund being leveraged. This may result in greater movements (down or up) in the price of shares in the Fund. It is not our intention that the use of derivatives will significantly alter the overall risk profile of the Fund.

The Fund’s share price can be volatile due to movements in the prices of the underlying holdings and the basis on which the Fund is priced.

Further details of the risks associated with investing in the Fund can be found in the Key Investor Information Document or the Prospectus, copies of which are available at bailliegifford.com.