The wide range of investment assumptions made by drawdown providers are a “recipe for confusion” for customers, experts say.
A survey conducted by CTC Software of over 30 providers shows a 3.8 percentage point difference between the lowest mid-rate return on equities, 4.4 per cent, and the highest – 8.2 per cent.
Likewise, there is a 2 percentage point spread between the mid-rate return on bonds, the lowest being 3 per cent and the highest 5 per cent.
Managed funds have a 4.6 per centage point spread, from 2.4 per cent to 7 per cent.
Annuity sales have plummeted since last year’s Budget announcements. It is expected thousands of people who would have bought an annuity in the past will instead enter drawdown with the introduction of the pension freedoms in April this year.
CTC managing director Nigel Chambers says: “Pension providers will continue to refresh their propositions and customer communications after April 2015. We believe that the FCA should subsequently consider how the illustration regime can be used to provide real information and help consumers make the right choice.
”I am concerned that wide range of growth rates being used, both within specific asset classes and across the whole piece provides a recipe for confusion rather than illumination”.
EY senior adviser Malcolm Kerr says: “It is interesting and perhaps worrying that there is such a wide range of growth rate projections within the various assets classes covered by this comprehensive and highly relevant survey. It again brings into question whether or not the industry should adopt some firm standards.”