So the first step for advisers receiving an ongoing adviser charge is to ensure that they have an active relationship with their clients. Advisers may also want to consider working with platforms, which do not go directly to clients.
The four Options
The numbering, order and standardised objectives of the four pathway options are mandatory for non-advised providers. The explanatory text and solutions types are not. In the table below, we also include our summary label for each option that may be more familiar to advisers.
| | Mandatory Wording | Explanatory Text | Our summary label |
Option 1 | I have no plans to touch my money in the next 5 years | Provider determined | Stay invested |
Option 2 | I plan to set up a guaranteed income (annuity) within the next 5 years | Provider determined | Take annuity |
Option 3 | I plan to start taking a long-term income within the next 5 years | Provider determined | Drawdown |
Option 4 | I plan to take my money within the next 5 years | Provider determined | Lump-sum |
What kind of investment solution for each Option?
Before we look at the specific investment characteristics of each investment options, it is worth considering what the requirements are regarding the price, type and format of investment solutions within a pathways context, and what this means for advisers.
Soft price cap: For all options, there is no price cap, but during the consultation, providers are expected to “challenge themselves on the level of charges they impose on investment pathways, using the charge cap on default arrangements [in workplace pension schemes] in accumulation of 0.75 per cent as a point of reference.” So while there is no price cap, there is an anchor or point of reference. We call this a “soft price cap”.
What this means for advisers: for advisers, we believe a best practice retirement proposition uses investment solutions with a total cost of 0.75 per cent excluding advice.
Type agnostic: For all options there is no specification by the regulator as to what type solution (that is, type of fund or suite of funds) would be appropriate for each Option with reference to the standardised objectives. That is for providers to determine, and for their Independent Governance Committee/Governance Advisory Arrangement to oversee. There is, however, a requirement that there can only be a “single solution” per option. This means a single fund, or choice of fund from the same range of funds, per option.
What this means for advisers: for advisers, we believe a best practice retirement proposition means limiting choice to a single highly governed investment solution for each option. For options 2 & 4 where there is a specific liability to be met (annuity or cash) within a certain time frame, we believe a single fund solution makes sense.
For options 1 and 3 where it is more open-ended, we believe a number of options, reflecting different risk profiles, or withdrawal profile, from the same range of funds or models, would be appropriate.
