View more on these topics

Nest to simplify its projection rules

Nest is developing simplified illustrations for its members as the FSA faces calls to rethink the rules governing retail investment projections due to claims the current regime is “meaningless and confusing”.

Last week, the regulator said it is considering cutting the projection rates that firms are required to use when marketing retail investment prod ucts which do not fall within the scope of Mifid.

Under current FSA rules, the intermediate rate of return projection which pension and life product providers are required to publish in their marketing material is 7 per cent. Firms are also required to publish growth rates 2 per cent either side of the central estimate.

An independent review carried out by PricewaterhouseCoopers, published last week, suggests the intermediate figure should be reduced to between 5.25 per cent and 6.5 per cent.

FSA head of investments policy Peter Smith says: “It is crucial that projection rates are set at a realistic level so that investors are not misled. Today’s independent research indicates that our maximum projection rates should be reduced.

“We are seeking views on the range of rates, so investors receive a reasonable indication of what they can expect from their investment.”

Independent pensions consultant Rachel Vahey says low-cost automatic-enrolment providers such as Nest will have a role to play in demonstrating how to communicate projected investment returns to savers in a simple way.

A Nest spokeswoman says: “This is something we are working on at the moment but we have not yet finalised exactly how we will communicate projected investment returns to our members. We need to make sure any information we send out to members is simple and understandable.”

AJ Bell marketing director Billy Mackay says the FSA and the industry need to rethink the way that illustrations and projected investment returns are presented to clients. He says: “Illustrations are fine when you are comparing charges but as an indication of what an investor is going to get when they retire they are not useful.

“At the moment, we provide investors pages and pages of numbers which are meaningless and confusing to your average retail investor. The industry and the FSA have to come up with a more simple way of providing people with an estimate of what they will get when they retire.”

AWD Chase de Vere head of communications Patrick Connolly (pictured) argues that projections still provide a useful benchmark for pension savers.

He says: “A simper system would clearly be beneficial but I am not sure how that could be achieved. While projections will very rarely be accurate, they do provide a barometer against which investors can plan for their retirement.”



Labour calls for firm fiduciary duty and MAS revamp

Labour has tabled a series of amendments to the Financial Services Bill that would place new requirements on firms, investors and the incoming financial regulators. Set to be published later this morning, if selected for debate by the Speaker, the proposed amendments will be be debated in Monday’s third reading of the bill. They were […]

Aviva Investors chief exec to step down

Aviva Investors chief executive Alain Dromer is leaving the company as part of a wider global restructure of the Aviva business. Aviva says its will recruiting a successor to Dromer (pictured) who will report to Aviva group chief finance officer Pat Regan. Regan will continue in his role as chief finance officer and will assume […]


Auto-enrol to be altered for sacrifice

The Government is set to amend automatic enrolment guide- lines after concerns over the impact on salary sacrifice. Under salary sacrifice, an emp-loyee agrees to a contractual drop in salary for an increased emp-loyer pension contribution. Cancelling a salary sacrifice arrangement is not currently permitted unless it is due to a “lifetime event”. This means […]

Boosting our annuity strategies

Targeting annuity purchase in lifestyle strategies isn’t anything new but we’ve just lifted the bonnet and injected an enhancement shot into the end-point of these solutions. The recent volatility has shot short-term volatility into equity markets and painted a very turbulent backdrop but we’re also equally faced with a stressed fixed interest environment. This can […]


News and expert analysis straight to your inbox

Sign up


There are 6 comments at the moment, we would love to hear your opinion too.

  1. “While projections will very rarely be accurate”

    I would like to see an example where projection rates have ever remotely resembled the actual outcome.

    Mike Fenwick should write something on this but I doubt anybody would listen, they never have.

    One thing he said was “how can an IFA be professional when the regulator dictates what can be presented to a client”. That IFA can’t warn the client that the figures are unlikely to be achieved, what is the point Mr Wheatley?

    Why can’t IFAs decide what a client should be told? Or at least warned.

    Those of you who say you wouldn’t like to be sued for false promises should ask why you accept the complete fiction that the regulator prescribes.

  2. Projections are execellent for comparing charges but the bottom line is that consumers are not interested in charges but in outcomes. If someone can deliver you a result 4 times better than anyone else, you would be quite happy to pay 3 times as much to the individual. And herein lies the problem.
    We are not making consumers face up to the fact that while we are encouraging them to save for their future, we are not able to give them guarantees on their returns and we try to pretend we can be focusing on charges, which are not directly linked to returns.

  3. I totally agree with Ewan owen. IFAs have had to circumvent the pure fiction offered by regulatory projections for many years.

    Just the fact that the regulator continuously meddles with the projection rates evidences how fatuous they are.

    The client needs to know that unless he puts away (not necessarily in a pension) a meaningful proportion of his earnings over most of his working life then he/she can look forward to a pretty miserable retirement. And if the client can only afford to save a few quid a month then he might as well not bother – he might as well rely on benefits in his old age and enjoy a few extra pints/glasses of wine now.

    We have, on the one hand, the FSA wanting to simplify NEST projections and on the other hand, IFAs having to hand out 10 or 20 pages of total crap (KIID) which the client will neither read or (generally) understand.

    The civil service mentality that seems to rule everything we do (not only financial services) is destroying the legitimacy of using common sense and, in so doing, ruining this country.

    Put in a ‘nutshell, the FSA don’t have a clue !!!


    I repeat what I wrote on a similar article on 19th April, 1107am

    The average illustration contains so much information and all based on supposition, and nearly all incomprehensible. I have been in this industry for 25 years and I still do not understand the basis behind the tables of “Effect of costs and charges”. This does not worry me, because NO-ONE ELSE DOES EITHER! I have talked to any number of Companies and asked for an explanation, and have never received two identical answers. The mathematics eludes me and my calculator which can never replicate the printed projections. Why?
    Well, when asked, most Companies will tell you that they HAVE NO CONTROL over those figures, but are created from data and formulae PROVIDED BY FSA. They rarely include TRUE costs and charges and cannot cope with anniversary bonuses and incentives.
    So, I have found an answer to the perennial question of, “What is it going to be worth?”
    I carry a small crystal ball in my briefcase. (Honestly!) If pushed, I will take it out, set it down and stare at it for a few moments, then say to the client, “Well, I can’t see anything, can you?”
    The point is made.
    Illustrations are a fairy story. On form, we could predict the podium positions of most Olympic athletes in a few months time. Taking all effects into account, we could provide a projection.
    And the results will prove us hopelessly wrong.
    I use illustrations and projections to explain RiY, Critical Yields and printed costs and charges. Projections and the effect of costs and charges, I explain, are the snapshot of the starting line, and little else, and are based on information that even the Companies that provide them do not understand.

    As I said at the beginning of this tirade, I have been in this business for 25 years. I have the benefit of taking out some very historic illustrations and comparing with actual results over 5, 10 and 15 years or more. Guess what? NOT ONE OF THEM COMES ANYWHERE CLOSE TO ACTUAL PERFORMANCE. (In all but 2 cases checked, the results were considerably better than projected.)
    So what use is it to the client? What use is it to the adviser?
    (What use is the FSA department that creates the formulae to be used for effects of costs and charges?)
    I have long opined that most illustrations and projections are totally contrary to TCF, being too long, too technical, too confusing and too obscure for the client (or IFA) to use to make a rational decision.

    Roll on retirement!

  5. Reading all the above it seems that education on charges, RIY and projections is woefully lacking, at both company servicing personnel and IFA levels – but some IFAs now have the facilities to do their own projections so that all charges are included and at the same growth rate for comparison purposes. Also, many IFAs now use asset allocation models with stochastic analysis to illustrate a range of outcomes based on historic performance for different asset classes – again free from provider interference and meddling.

  6. Ban projections altogether, because they are worthless. Worse, as so many correspondents have pointed out, they are also dangerous.

    Require all charges to be disclosed in cash, at outset and annually. No need for RIY.

    Shoot all IFAs who can say, let alone spell, stochastic. They probably don’t understand the maths, which means they probably don’t understand the difference between risk that we think we can quantify and uncertainty that we know we can’t. All these models are based on concoctions of assumptions about a future that we cannot predict. They are fancy crutches designed to help so called advisers convince their clients that they know things the client doesn’t.


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