Some providers already offer a range of standardised solutions, which take account of different consumer needs. Firms can use questioning or filtering tools to identify standardised solutions for consumers with particular needs or characteristics.
However, these should be shown alongside the default option to ensure that consumers can fall back on the default option if they struggle to make a choice.
The FCA originally proposed a consistent naming convention but have now moved away from this, allowing providers to name their default fund option appropriately. However, they will need to include a simple description of the default option.
The FCA has stipulated that firms must build lifestyling into the design of the default option. This is to ensure that investments are de‑risked automatically in the run up to a target date of retirement.
The lifestyling built into the design of the product should be with good customer outcomes in mind for a given target market and should not automatically lead to full disinvestment from growth assets
However, it is not mandatory. In some circumstances it may be incompatible with the needs of the target market and in these circumstances it does not have to be included.
NWPs that do not have to offer a default option
Any NWPs that are closed to new business, or do not allow any non-advised customers, do not have to offer a default investment option.
NWPs that predominately offer workplace pensions in their contract and NWPs that are just an added option will not be required to offer a default option, but can do if they want to do so.
Likewise, the default investment option does not need to be offered to advised customers but it will be available as a fund choice.
Empty wrapper Sipps offered by bespoke Sipp providers are also exempt.
What about significant cash holdings?
The new rules being implemented for significant cash holdings apply to all providers that provide NWPs. A cash warning will need to be issued if the criteria is met.
There are no exemptions for NWPs that are:
- closed to new business or do not allow any new non-advised customers;
- empty wrapper Sipps; and
- marketed by providers that have workplace and NWPs. They will be required to provide cash warnings to their NWP customers.
There is one exemption for the need for cash warnings. That is where a customer has contracted with a third party, for example a discretionary investment manager.
This applies when they have permission to execute trades or request the NWP provider place dealing instructions for all the NWP assets.
Where they have permission for part but not all the NWP assets, then that part may be excluded from the calculation of the proportion of NWP assets held in cash.
