The FSA has threatened to take action against pension providers if they do not stop using standard projection rates for cash in a second industry warning.
Money Marketing revealed in August that only three providers – LV=, Standard Life and Legal & General – were using lower projection rates despite FSA condemnation of firms overstating potential returns in its pension switching report in December.
In its latest warning note to providers, sent out last week and seen by Money Marketing, FSA director of conduct risk Dan Waters says including a caveat next to 5,7 and 9 per cent standard projections, as some providers have been doing, is not good enough. It follows a remin-der from the Association of British Insurers that firms must meet their “obligations under conduct of business rules”.
In the latest letter, Waters says: “You must comply with the requirement to revise the standard rates downwards where a product is unlikely to achieve returns in line with these rates. This notice rescinds any existing individual guidance that you may have received permitting you to use the standard rates with a caveat.”
The FSA will conduct a further sample review next year to ensure that firms have changed their practice.
An FSA spokesman says: “We are going to come back and look at this and if at that stage firms are still failing to comply, we will take appropriate measures, potentially enforcement action.”
An ABI spokesman says: “It is for individual firms to make their own decisions on projection rates that are realistic, based on the nature of their individual products and circumstances. Firms also need to ensure they can justify their decisions to the FSA.”
informed Choice managing director Martin Bamford says: “It is misleading to use standard rates to project to a client in cash or fixed interest in terms of what they are likely to get.”