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FSA used a standard 7% projection on its website

The FSA used a standard projection rate of 7 per cent to calculate charges on its moneymadeclear website despite repeatedly insisting that pension providers make and justify fund-specific growth rates.

The website, which has been operated by the Consumer Fin-ancial Education Body since April, currently uses standard growth rates to estimate charges on investment bonds, endowments, unit trusts and Oeic Isas.

A CFEB spokeswoman confirmed that the standard rates were “definitely” in place before it took over the site.

The FSA began its clampdown on the use of standard projection rates in December 2008. Life and pension providers faced accusations of overstating the returns on cash investments by using standard 5, 7 and 9 per cent rates of return. The FSA refused to comment on the projection rates on the website.

Standard Life head of pensions policy John Lawson says that the FSA and the Government need to have a “fundamental rethink” over projections policy.

He says: “In the long-term, the whole Government needs to have a look at projections. The DWP and the regulator need to get together and decide whether what we send people is good value for money or not.”

Worldwide Financial Planning IFA Nick McBreen says: “While I understand and appreciate the intent to get some standardisation across illustrations, for consumers, the numbers are just an alphabet soup.”

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Comments

There is one comment at the moment, we would love to hear your opinion too.

  1. You must be joking 23rd October 2010 at 10:04 am

    Illustration rates are ALL misleading, and the maths befind ALL illustrations is flawed.

    This in turn means that ALL reduction in yield figures are incorrect.

    Why? Two extremely simple reasons:

    1. NOBODY knows what the returns from ANY asset class will be in the future.

    2. Irrespective of the above, I will personally guarantee that NO asset class will produce the same return year after year after year.

    In the world of TCF, the most misleading document given to clients is the illustration – whatever the assumed growth rates.

    If the FSA, ABI, etc had any sense, they’d be banning illustrations immediately!

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