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Default lines cause tremors

The latest glitch to hit providers&#39 hopes of marketing stakeholder is the

interpretation of rules on default options which has led some offices to

feel disadvantaged.

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&#39 stakeholder

short lists.

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

explicitly altered”.

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

stakeholder schemes.

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&#39s 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

their employers.

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

clear enough.

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&#39s 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

or consumers.

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.


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