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Projection cut plan is to build up trust

The FSA has confirmed plans to cut the projection rates providers and advisers are required to use to illustrate potential future investment returns.

Currently, firms must project three different possible rates of return – 5 per cent, 7 per cent and 9 per cent – for tax-advantaged products such as personal pensions.

Last week, the FSA published a consultation paper proposing to reduce these rates to 2 per cent, 5 per cent and 8 per cent.

The regulator also plans to reduce the projection rates on tax-disadvantaged products such as investment bonds and endowment policies.

These are currently set at 4 per cent, 6 per cent and 8 per cent but the regulator wants to reduce them to 1.5 per cent, 4.5 per cent and 7.5 per cent.

FSA director of conduct policy Sheila Nicoll says: “Investors need to be able to trust information they receive and any suggestion as to how their investment might grow in future must not be misleading.”

The regulator’s recommendations were informed by a report by PricewaterhouseCoopers. The PwC report bases its proposed projection rates on a fund invested 57 per cent in equities, 23 per cent in government bonds, 10 per cent in property and 10 per cent in corporate bonds.

Aegon head of regulatory strategy Steven Cameron says: “It makes no sense to base the cap on a fund which is invested 57 per cent in equities.

“If it is a cap the FSA wants to set, it should base this on a fund invested 100 per cent in equities.

“If we give an unduly pessimistic figure, you could argue we are misleading customers into thinking they need to contribute more than they should.”

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