How are cash warnings in non-workplace pensions changing?

The outcomes the FCA are seeking are that: 

• the default options are fair value and designed to meet the needs of the typical non‑advised consumer choosing them; 
• on average, there is a better pension outcome for consumers choosing a default option than they could otherwise achieve on their own; and
• fewer consumers hold a significant and sustained levels of cash in their NWPs over the longer term. 

The default fund option in detail

The FCA found that many consumers with NWPs struggle to make investment choices beyond deciding that they want a pension. 

They feel that presenting consumers with multiple options would not address the harm of consumers not being able to choose an investment option.   

The NWP providers that fall under the new requirement will need to provide a default investment option to any new non-advised customers at the time they take out the new pension.    

Consumers will need to be clearly given the choice of one default option. Firms will need to present consumers with an appropriate default option without them having to answer detailed questions in advance.

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.

The lifestyling built into the design of the product should be with good customer outcomes in mind.

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.