Default arrangements with a ‘promise’
Currently, arrangements with a promise as to the level of benefits are carved out from the definition of a default arrangement and, as such, also exempted from the default fund charge cap. As a result, such arrangements are not required to produce a default SIP. In practice, the only commonly found default arrangements which might have guarantees are older with-profits policies.
In recognition of the cost of providing the promise, it remains Government policy that such arrangements are outside the scope of the charge cap. But the Government wants these arrangements to document their aims and objectives, explain how their selection of with-profits is intended to ensure that the assets are invested in the best interests of beneficiaries and regularly review their performance and appropriateness. It is therefore consulting on a change to the regulations which will require them to produce a default SIP.
The consultation closes on 30 October 2020. The DWP intends the draft regulations to come into force on 5 October 2021.