But it seems the regulator is less than fussed that the majority of pension providers have snubbed its warnings regarding overstating potential returns, particularly for cash.
Granted the thematic review concentrated heavily on unsuitable switching advice given by some IFAs. But the fact remains that providers were explicitly told to change their ways yet only three – LV=, Standard Life and Legal & General – are currently using lower projection rates.
As revealed in this week’s Money Marketing, the lack of compliance by other insurers has prompted the Association of British Insurers to send companies a reminder, stating: “The FSA is concerned that illustrations for growth on long-term investment products provided to consumers by firms are not based on realistic projection rates.
“This note is to remind firms of their obligations under COBS rules to show realistic projection rates.”
In the pension switching report, the FSA states: “We were concerned that some providers seemed to us unlikely to be complying with the rules requiring lower projection rates to be used where the standard rates in the conduct of business sourcebook would overstate the investment potential and understate charges.
“We saw cases where the provider used the standard 5, 7, 9 per cent rates of return to project for cash.”
But Axa, Aegon, Aviva, Prudential, Zurich, Clerical Medical, Scottish Widows and Scottish Life are still using the 5, 7, 9 per cent standard projection rates for cash. Meanwhile, the projection rates used by LV=, Standard Life and Legal & General vary from 2.25 per cent to 6.75 per cent. Standard and L&G were using lower projections even before the regulator waded into the debate.
Axa, Aviva and Scottish Widows say they are reviewing the rates they use but Aegon says it has no plans to change.
A spokeswoman says: “We do not currently have any plans to change the projection rates as the vast majority of our customers who invest in the cash fund do so on a short-term basis and we believe it would be misleading to protect on cash relevant rates over the longer term.
“However, we are looking into how we can make this more prominent in our illustrations so customers can clearly understand the assumptions we have used in the projections.”
An FSA spokesman says: “Firms do need to meet our requirements, which have been clearly set out for some time. We are working with firms to make sure they take the necessary steps as soon as possible.”
What are your views? Should the FSA come down harder on providers that have failed to act? Does the fact that some providers have moved on this while others have not pose comparison problems for IFAs? Are projection rates worthwhile at all or will they always mislead the customer?
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