Have you looked at your pension lately and felt like everyone else suddenly knows something you don’t?
I certainly did when the latest numbers landed on my desk. Something big is happening inside Britain’s self-invested personal pensions, and it’s happening quietly, without the usual fanfare you get when markets crash or Bitcoin moons.
People are walking away from investment trusts – those venerable, sometimes centuries-old vehicles that many of us grew up believing were the “smart” way to invest – and pouring money into passive funds, money-market funds and even individual shares instead.
The Great Pension Reset Nobody Saw Coming
In the second and third quarters of 2025 something shifted. It wasn’t dramatic headlines or a market meltdown. It was millions of ordinary savers, both still working and already retired, quietly changing horses.
The evidence comes from one of the largest investment platforms in the country, with over half a million customers. Their data shows passive strategies are no longer the preserve of twenty-something fintech bros – they’ve become mainstream inside retirement portfolios.
Passive Funds Are Eating the World (Again)
Let’s start with the headline act: exchange-traded funds (ETFs) and other passive vehicles are seeing record inflows from SIPP investors.
These aren’t speculative plays on obscure sectors. Most of the money is going into broad global trackers – the kind that simply follow the MSCI World or FTSE All-World index for a fee you can barely see with the naked eye.
Why now? A few reasons seem to be colliding at once.
- Global stock markets have delivered strong returns for several years running.
- Fees on passive funds have fallen to almost nothing.
- Trust in active management has taken repeated knocks.
- Quite frankly, many people are tired of paying 1% a year for performance that lags the index.
In my experience, once investors see a decade of data showing the majority of active funds failing to beat their benchmark after fees, the decision almost makes itself.
The Curious Love Affair with Money-Market Funds
Perhaps the most eye-catching trend is the explosion in money-market funds.
One short-term money-market fund has sat at the very top of the best-seller list for months. Five of the top ten most-bought funds on the same platform are now cash-like products offering around 4-5% with next to no capital risk.
“For the first time ever, a money-market fund is the single most popular holding among customers already in drawdown.”
– Platform quarterly report, Q3 2025
That quote stopped me in my tracks. Retirees – the very people who arguably need growth the most to combat inflation over decades – are choosing near-cash returns.
But before we cry “sequence of returns risk!”, let’s be honest: after the base-rate peak of the last few years, 5% with daily liquidity felt pretty attractive compared to bonds yielding less or equity markets that looked expensive.
Now that rates are falling, the obvious question is whether this cash park going to feel quite so comfortable at 3% or lower?
Investment Trusts – From Darling to Dog
If passive funds are the new heroes and money-market funds the surprise package, investment trusts are firmly in the sin bin.
Allocations to trusts have fallen across both accumulation and decumulation customers. For retirees in drawdown the drop has been even sharper.
This hurts a little if, like me, you’ve long admired the trust structure – independent boards, the ability to gear, revenue reserves to smooth dividends, and often world-class managers.
Several factors seem to be at play:
- Wide discounts to NAV (many popular trusts still trade 15-30% below asset value).
- High interest rates made fixed-income alternatives look better on a risk-adjusted basis.
- Cost disclosure rules have made the ongoing charges figure look scarier than it often is.
- The relentless marketing push (and genuinely lower fees) from ETF providers.
The irony? Many of those “expensive” trusts have actually delivered excellent long-term returns. But perception is reality in investing.
Direct Shares Stage a Comeback
Here’s a subplot that surprised almost everyone: individual share holdings inside SIPPs just hit a three-year high.
Yes, in the age of passive everything, people are buying more single stocks than at any point since early 2022.
Some of this is undoubtedly older investors consolidating holdings or taking tax-free cash and then reinvesting in names they know and trust. But there’s also a generational angle – younger SIPP investors are increasingly comfortable stock-picking alongside their core passive holdings.
It’s the barbell strategy in action: ultra-cheap global tracker for the core, a handful of conviction shares for the satellite.
Tax-Free Cash Grab – Bigger and Earlier
Last autumn’s pre-Budget panic saw a spike in people crystallising benefits to secure their 25% tax-free lump sum before any rumored changes.
The Chancellor left it untouched (this time), but the data shows the average tax-free lump sum taken in 2025 was both larger and taken at a slightly younger age than in previous studies.
Whether that’s sensible depends entirely on individual circumstances, but it does suggest a growing wariness about future rule changes.
What Happens Next? A Contrarian Opportunity?
Here’s where it gets interesting.
As interest rates fall, the income appeal of cash and short-dated bonds will diminish. At the same time, many quality investment trusts are trading at discounts not seen since the COVID lows.
“Falling rates could spark a powerful re-rating in closed-end funds while simultaneously pushing investors back toward growth assets.”
– Investment platform commentator, Dec 2025
Add in the upcoming inclusion of pensions in inheritance tax from 2027, and the incentive to keep money invested (rather than withdrawn and spent) actually increases for many families.
In other words, today’s most unloved corner of the market – investment trusts – might just become tomorrow’s comeback story.
I’m not saying rush out and back up the truck. But wide discounts, falling rates, and a decade-plus of strong underlying performance make the contrarian case surprisingly compelling.
Three Takeaways for Your Own Pension
- Don’t follow the crowd blindly. Just because everyone is piling into money-market funds doesn’t make it right for your personal risk tolerance or time horizon.
- Revisit your investment trust holdings. Some are genuinely cheap for fundamental reasons, others are simply out of favour. Know which is which.
- Think long term. The best pension decisions are usually the boring ones made without emotion during periods of maximum noise.
Whatever path you choose, the data is clear: British pension investors are more active, more cost-conscious, and more willing to vote with their wallets than ever before.
And in the end, that’s probably healthy for all of us.
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