Aegon has warned the FSA’s proposed maximum pension investment projections will force providers and advisers to undervalue potential future returns.
Earlier today, the regulator confirmed plans to reduce the projection rates providers and advisers are required to use to illustrate possible future investment returns to customers.
Currently, firms must project three different rates of return – 5 per cent, 7 per cent and 9 per cent – for tax advantaged products such as personal pensions. The regulator proposes reducing these rates to 2 per cent, 5 per cent and 8 per cent.
FSA director of conduct policy Sheila Nicoll emphasised that the proposed projected returns are “maximum levels”.
The regulator’s recommendations were informed by a report by PricewaterhouseCoopers. The PwC report bases its proposed projection rates on a fund with 57 per cent equities, 23 per cent government bonds, 10 per cent property and 10 per cent corporate bonds.
Aegon head of regulatory strategy Steven Cameron (pictured) says the maximum return should be based on a pension which is invested 100 per cent in equities.
He says: “The FSA is trying to come up with a projection figure which nobody should ever exceed.
“It makes no sense to base that cap on a fund which is invested 57 per cent in equities. If it is a cap the FSA wants to set it should base this on a fund invested 100 per cent in equities.
“If we give an unduly pessimistic figure, you could argue we are misleading customers into thinking they need to contribute more than they actually need.”