View more on these topics

Gap on returns means FSA may cut projections

The FSA could be forced to cut projection rates for with-profits policies over concerns that life offices could be attracting new investors by overstating likely future performance.

Independent research conducted on behalf of Money Marketing reveals that typical with-profit policies – calculated using the average asset allocation of all available products – are returning far more to investors than their underlying asset performance warrants.

Although this smoothing effect is integral to with-profits, the FSA is believed to be concerned that the deficit bet-ween declared bonuses and returns is increasingly creating a drag on performance as life offices attempt to replenish depleted reserves.

As companies have to use projection rates of 4, 6 or 8 per cent, the FSA is believed to fear that new investors are unaware that their policy is unlikely to match the projected performance or deliver the bonuses they may have been expecting.

This view is supported by the research, which shows the average policy – invested 54 per cent in equities and 46 per cent in fixed interest, property and cash – needs its equity element to achieve 7.25 per cent growth to deliver a 6 per cent annual return. In reality, equities in FTSE 100 have fallen by around 30 per cent in the last year.

To address the problem, the FSA may scrap the 8 per cent projection rate or lower all three – its rules state a reduced rate of return must be used if companies believe the figures are overstating a policy&#39s potential – but it says no decision has been made.

Spokesman Rob McIvor says: “Projection rates are something we are keeping under review. If we feel there is a need to revise the rates, then we will do so.”

Bestinvest deputy managing director Jason Hollands says: “I can imagine there will be pressure to reduce them. Projection rates are a perennial problem for all investments.”


Friends Provident sales up

Friends Provident has announced a 13 per cent increase in new business for the first nine months of the year. The results show an increased focus on group pensions and protection, with with-profits accounting for only 27 per cent of sales.Protections sales went up 19 per cent to £32m from £26m APE and group pensions […]

FSA fines to be paid by shareholders

Fines imposed by the FSA on life offices will have to be paid by shareholders rather than out of funds owned by policyholders, the regulator has confirmed.The rule change made by the FSA Board last week comes into effect as of November 1. As reported in Money Marketing in the summer, the idea was proposed […]

&#39Banks will clean up with Sandler products&#39

General practice IFAs targeting the middle market have two years to sort out their businesses before they start facing serious competition from highstreet banks selling Sandler&#39s new products, accor-ding to Clerical Medical.Head of intermediary strategic planning David Shelton says banks and building societies will have an advantage because they will be able to market the […]

A date with destiny for bond values

It is probably fair to say that most advisers would claim to have a pretty good grasp of the taxation regime that applies to single-premium bonds. After all, it has been around for many years and the concept of 5 per cent tax-deferred withdrawals, top-slicing relief and the impact of withdrawals in excess of 5 […]

Mothers missing out on millions

By Steve Webb, director of policy and external communications The ninth Royal London Policy Paper discusses how thousands of mothers are missing out on state pension rights when they don’t have to Earlier this month we published the ninth Royal London Policy Paper, entitled ‘Mothers Missing out on Millions’. It focuses on the thousands of mothers […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm