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.”