PROD 6.4 Manufacture of default options

When designing a default option, a manufacturer should take into account, among other considerations, the fact that COBS 19.12 requires operators to offer the default option to non-advised clients for inclusion in their non-workplace pensions. As a result, the default option must be designed to be compatible with the needs, characteristics and objectives of a typical non-advised client in the default option’s target market.

A manufacturer must also ensure that:

1. (1)

   when specifying the investment strategy of the default option, and its costs and charging structure, it takes into account what the manufacturer considers, on reasonable grounds, to be the likely needs, objectives and characteristics of a typical non-advised client in the target market;

2. (2)

   the investment strategy of the default option:

   1. (a)

      takes into account the target retirement age of a typical non-advised client in the target market, and their likely strategy for accessing their pension;

   2. (b)

      includes lifestyling, unless lifestyling is not appropriate for the needs, objectives and characteristics of the typical non-advised client in the target market or the default option is based on target date funds; and

   3. (c)

      seeks growth, while managing risks, through an appropriate and diversified asset allocation; and

3. (3)

   the default option has appropriate and competitive price and charges, which bear a reasonable relationship with the services being provided.

Manufacturers must review their default options at least once every 3 years to ensure that they:

1. (1)

   remain consistent with the needs, characteristics and objectives of a typical non-advised client in the target markets; and

2. (2)

   are being distributed to their target markets.