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PROD 6.1 General

PROD 6.1.1 R

1 2This chapter does not affect the application of other requirements in the FCA Handbook or onshored regulations3 applying to firms within the scope of this chapter. Firms within the scope of PROD 1.3 (Application of PROD 3), PROD 1.4 (Application of PROD 4), PROD 3 (Product governance: MiFID) and PROD 4 (Product governance: IDD) must continue to comply with those provisions.

PROD 6.2 Manufacture of pathway investments

PROD 6.2.1 R

1 2A manufacturer must review its pathway investments at least annually to ensure that the pathway investments:

  1. (1)

    remain consistent with the needs, characteristics and objectives of their identified target market, taking into account the investment pathway options in COBS 19.10.17R(1); and

  2. (2)

    are being distributed to their target market.

PROD 6.2.2 G

A firm to which the record-keeping rules in SYSC 3 (Systems and controls) or SYSC 9 (Record-keeping) apply should maintain, in relation to its manufacture of pathway investments, a record of the process undertaken to approve each pathway investment, and of the review conducted for each pathway investment to comply with PROD 6.2.1R.

PROD 6.3 Distribution of pathway investments

PROD 6.3.1 R

1 2A firm must not distribute a pathway investment unless it is compatible with the needs, characteristics and objectives of those retail clients that fall within the pathway investment’s target market, taking into account the investment pathway options in COBS 19.10.17R(1).

PROD 6.3.2 R

When carrying out the compatibility assessment referred to in PROD 6.3.1R, firms must take into account:

  1. (1)

    the price and complexity of the pathway investment; and

  2. (2)

    where the firm is referring retail clients to be transferred to the personal pension scheme or stakeholder pension scheme operated by another firm, they must also take into account:

    1. (a)

      the charges and other product features of that other firm’s drawdown product;

    2. (b)

      the financial strength of that other firm; and

    3. (c)

      the reliability and efficiency of that other firm in relation to its dealings with retail clients.

PROD 6.3.3 R

A firm must review the distribution arrangements for the pathway investments it distributes at least on a two-yearly basis to ensure:

  1. (1)

    the distribution arrangements are still valid and up to date; and

  2. (2)

    the pathway investments remain compatible with, and are being distributed to, their target market in accordance with PROD 6.3.1R.

PROD 6.3.4 G

A firm to which the record-keeping rules in SYSC 3 or SYSC 9 apply should maintain, in relation to its distribution of pathway investments, a record of the process undertaken to select each pathway investment, and of the review conducted for each pathway investment to comply with PROD 6.3.3R.

Obligations on firms where retail clients are not acting in their interests

PROD 6.3.5 R

Where a firm (A) refers retail clients to another firm (B), where B can offer a pathway investment to the retail client if the retail client transfers to the personal pension scheme or stakeholder pension scheme operated by B, both A and B must comply with PROD 6.3.6R.

PROD 6.3.6 R

Where:

  1. (1)

    A becomes aware of a pattern of retail clients choosing to stay with A and not transferring to B; and

  2. (2)

    A considers that this choice is unlikely to be in the interests of those retail clients, having regard to their objectives and characteristics; then

  3. (3)

    A must promptly inform B of its concerns in (1) and (2); and

  4. (4)

    A and B must each take reasonable steps to minimise the potential harm to retail clients.

PROD 6.3.7 G

Reasonable steps for the purposes of PROD 6.3.6R may include A and B making it easier for retail clients to transfer to the personal pension scheme or stakeholder pension scheme operated by B.

PROD 6.4 Manufacture of default options

PROD 6.4.1 R

1When 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.

PROD 6.4.2 R

1A 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.

PROD 6.4.3 G

1 Manufacturers are expected to take reasonable steps to understand the likely needs, objectives and characteristics of a typical non-advised client in the default option’s target market. This could include carrying out sufficient research and consumer testing in support of its conclusions. What amounts to a typical non-advised client may be based on the needs, objectives or characteristics that are most commonly seen among non-advised clients within the target market.

PROD 6.4.4 R

1 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.

PROD 6.5 Distribution of default options

PROD 6.5.1 R

1A firm must not distribute a default option unless it is compatible with the needs, characteristics and objectives of the retail clients to whom the firm distributes the default option.

PROD 6.5.2 R

1When carrying out the compatibility assessment in PROD 6.5.1R, a firm must also take into account:

  1. (1)

    the manufacturer’s compliance with the requirements in PROD 6.4; and

  2. (2)

    the financial strength of the manufacturer.

PROD 6.5.3 R

1A firm must review the distribution arrangements for the default options it distributes at least every 3 years.