Pension projections cut by FSA to stop 'false impressions'

  • 2 November 2012
  • From the section UK

Projected investment returns on pension plans must be reduced from 2014, says the Financial Services Authority (FSA).

The City regulator wants investment firms to show more realistic, and also less optimistic, potential returns than those currently used.

It said this will reduce the chances of investors getting a "false impression" of the value of their potential future pensions.

Firms will have a year to implement the new rates, which begin in April 2014.

The FSA also says the new regulations will limit the impact of management charges on someone taking out a product such as a personal pension or a life policy.

For many years the rules have required firms to project possible rates of return on investments, to show investors what they might receive.

These are not a guarantee of possible cash pots, but do provide a flavour of what people might eventually gain from years of making contributions into private pension plans.

Pension firms are currently meant to give three different rates of return - 5%, 7% and 9% - and to revise them down if a product appears unlikely to achieve this.

But the FSA has been consulting on plans to strengthen these rules.

The calculations used to give people pension projections are to be revised down

It had found that some firms had failed to downgrade the investment projections in their promotional literature, even when it had become clear that they were unlikely to be fulfilled.

And the FSA was advised that the old projections were in any case out of line with economic reality.

It said the new projection rates will be cut to 2%, 5% and 8% to make sure customers are not given exaggerated or potentially misleading information.

Tom McPhail, head of pensions research at Hargreaves Lansdown, a financial services company, said: "It is important to remember that these are just projections - they will have no impact on what investors actually get back from their savings.

"The one thing we can guarantee is that whatever projection rates are used, they will be wrong, simply because they are only projections - reality will be different."

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