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FSA probes pension projections

The FSA is to examine contracting-out projection rates and the rules surrounding the state second pension in a consultation paper to be issued this month.

The move follows the imm-inent changes being brought in by the Department for Work and Pensions to introduce new combined benefit statements for money-purchase pensions.

The DWP is expected to issue its guidelines for the statements, which are being developed by the Faculty & Institute of Actuaries, next week.

The combined benefit statements will show pension fund projections at real rates of return rather than the current 5 per cent, 7 per cent or 9 per cent growth rates used in the FSA pointof-sale projections.

The FSA will then issue a consultation paper to bring its projection rates in line with the DWP statements and will consider the benefits of the S2P.

Contracting out of the S2P, which replaced Serps from April 6, has become a difficult issue for the industry.

The Government has set rebate levels for contracting out of S2P at such low levels that providers and advisers say there is little financial incentive to contract out of the state system.

FSA spokeswoman Jackie Blyth says: “We cannot comment on a consultation paper that is not out yet but we will be considering S2P in the projections.

“We have to consult when the Government brings in its changes for statutory ill-ustrations and that will inc-lude changes from S2P.”

Royal & Sun Alliance asset allocation leader Mark Birks says: “A lot of the work that is done on contracting out is hamstrung by the fact that projections are done on different bases. It would be nice if there was a level playing field on the assumption used.”

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