The latest glitch to hit providers' hopes of marketing stakeholder is the
interpretation of rules on default options which has led some offices to
Some companies have designed their stakeholder with just one default fund
while other players have registered multiple defaults.
The move could leave firms with one default fund feeling the pressure to
rethink to give themselves an equal chance of making employers' stakeholder
Some life offices, including Friends Provident, claim the lack of clarity
on the Opra rules means they face missing out on short lists. Some
companies considered that “default” implied one fund only.
The Collins English Dictionary defines default as “the preset selection of
an option offered by a system which will always be followed except when
But Opra says there is nothing to stop life offices from offering more
than one default.
Stakeholder regulations stipulate that scheme members cannot be forced to
make an investment choice, which means that every stakeholder scheme is
required to have one default option.
When a scheme is registered with Opra, it is required to state its default
option and include this in the statement of investment principle, which
sets out the reason why it has selected investment options.
It is not yet clear how the statement of investment principle deals with
multiple defaults and less clear how this can meet the requirement not to
force policyholders into making investment decisions.
The various interpretations by life offices has an impact on IFAs and
employers because of the requirement to state the investment principle for
Where there is more than one default, this could leave employers
vulnerable to doing the work of IFAs in making or helping staff with
investment decisions unless IFAs keep a careful eye on the scheme –
contradicting the whole point of a default option.
This begs the question of when is a default is not effectively a default
and brings back Torquil Clark's argument to the fore that Opra should
require every stakeholder scheme to register an appointed IFA to oversee
the scheme and provide ongoing access to advice to protect employees and
Friends Provident was not alone when it was initially shocked that Opra
looked to be handing some providers an advantage because the rules are not
But its view on the matter differs starkly from others such as Royal & Sun
Alliance, which believes that, provided it is clear which default fund
applies to which members, and provided that policy is operated
consistently, there can be more than one default fund, enabling providers
to offer age-related or lifestyle defaults.
What happens now? As Opra says, there is nothing to stop any providers
registering dozens of defaults but do they want to?
Standard Life's stakeholder default is a with-profits fund, which Standard
is sticking to, arguing that it represents a suitable option for a range of
Norwich Union is is still deciding what action to take.It says it will aim
to avoid a bureaucratic burden with Opra while not risking confusing IFAs
Either way, Opra is adamant that it has misinformed no one and it is
steering clear of how the market chooses to work within the rules.
The latest confusion surrounding stakeholder rules appears to be yet
another puzzle for life offices and IFAs to unravel.