Statutory money-purchase illustrations are likely to overstate the level of the income their funds will generate, warns Millfield pension specialist Graham Duckett.
He says a combination of over-ambitious equity returns and falling annuity rates means income projections in the new pension benefit statements now going out to the public will already be out of date. Duckett warns that projected returns of 4.5 per cent a year are unrealistic, particularly for those approaching retirement who would have reduced their equity weighting in favour of fixed-interest investments in the years before taking benefits.
He says: “People face lower annuity rates at the date they actually retire and may not get returns of 4.5 per cent across their fund. For many, this will mean that they will get less than their SMPI statement predicts.”
But Scottish Equitable pensions development manager Stewart Ritchie says: “The point of SMPI is that people will receive their statements and will see the variations that are an inevitable part of money-purchase. To pretend that they do not go up and down is to ignore the nature of money purchase.”