Investment trusts are abandoned by pension savers in favor of passive funds

Self-invested personal pension (Sipp) clients are choosing money market funds, passive funds, and individual shares more frequently, which is reducing demand for investment trusts

As they navigate a shifting retirement landscape, pension savers are selecting individual shares and passive funds for their portfolios and withdrawing larger tax-free sums from their pots earlier.

This is the conclusion of a comprehensive pension study conducted by Interactive Investor (ii), the second-largest investment platform in the UK with over 500,000 users.

It examined how its self-invested personal pension (Sipp) investors behaved in the past as well as in the second and third quarters of 2025.

According to the study, people who are withdrawing money from their Sipps and saving for retirement are increasing their allocations to exchange-traded funds (ETFs), indicating that passive funds are popular.

Remarkably, it also discovered that consumers purchased more individual shares, with allocations reaching their highest point in three years (since the first quarter of 2022).

However, low-risk, cash-like returns are also available to pension investors. The Royal London Short-Term Money Market Fund is the most favored fund among its clients. In fact, money market funds made up five of its ten best-selling funds last month.

Over the past year or so, money market funds have become especially popular as investors looked for high-interest funds due to a high Bank of England base rate (though the base rate is currently declining).

The Royal London money market fund is currently the fourth best-selling fund at AJ Bell, another investment platform, in 2025. Money market funds and cash funds are also the most popular investments on the Fidelity platform.

Money market funds are now the most popular holding for customers taking money out of their portfolios for the first time, according to II's Sipp study.

The demand for investment trusts is declining in relation to investments that are no longer popular. According to ii, investing in trusts decreased for clients who saved money into their Sipps and even more for those who were in drawdown.

The landscape of pensions is changing.

The findings coincide with a number of impending changes that pension savers must deal with. Inheritance tax calculations will take pensions into account starting in April 2027. The age at which you can begin taking money out of your pension will increase from 55 to 57 in April 2028, one year later.

Meanwhile, the Autumn Budget announced that salary sacrifice pension contributions above 2,000 will face National Insurance from April 2029.

Older pension savers rushed to seize their tax-free money in the lead-up to last month's budget, fearing that the chancellor would cut it or impose a cap. Ultimately, no modifications were declared.

Customers took a slightly earlier and larger tax-free lump sum on average this year compared to their previous Sipp study, according to the Interactive Investors study. This could be because of concerns about the budget.

Investment trusts may resurface in the future, according to Kyle Caldwell of Interactive Investor.

He claims that while demand for money market funds and gilts has increased, demand for investment trusts has decreased due to high interest rates. The ongoing robust performance of the world's stock markets is another factor at work, which has prompted some investors to look for international exchange-traded funds (ETFs), which offer the market's return at a minimal cost. The "

Caldwell observes: "There may be a greater demand for investment trusts in the upcoming years, but only time will tell." Interest rates are declining, which may lead investors to take on more risk in their quest for real money growth since this will reduce the appeal of lower-risk assets like bonds and cash. The "