The FSA may be backing away from setting recommended projection rates, with a discussion paper due in July to pose the question whether this is the regulator's role.
A review of projection rates was announced last June after a report from PricewaterhouseCoopers drew attention to the uncertainties inherent in any projections of investment growth, suggesting that a more sophisticated approach to setting rates could be helpful.
Now Money Marketing understands from sources close to the FSA that as well as considering the role of projection rates and how they are set, the discussion paper will also be considering whether the FSA should be setting projection rates at all.
Scottish Widows head of industry relations George Andrew is concerned that IFAs' jobs could be made more difficult if each company were to decide their own projection rates, suggesting a more sensible approach could be generic projection rates set by the FSA for equities and for gilts, leaving companies to make clear the composition of their funds.
Raising Standards director Martin Shaw believes projection rates are useful for pensions or mortgage-backed products but says that for savings products such as bonds or unit trusts, the best that projections can provide is an indication of what might happen, which is still useful to the consumer but not more useful individualised than generic.
The FSA sets projection rates for untaxed products such as pensions and Isas at 5 per cent, 7 per cent and 9 per cent and for taxed products such as collective investment schemes and mortgage endowments at 4 per cent, 6 per cent and 8 per cent.
The source close to the FSA says: “The discussion paper will be looking at whether projection rates should be used at all, whether it is the FSA's role to set them and if not who should set them. It will not recommend specific rate changes.”