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Projections plummet for DWP statements

The Department for Work and Pensions&#39 new annual pension illustrations are set to show that savers&#39 pensions could be up to 88 per cent lower than their current projections.

As reported in Money Marketing in January, the DWP illustrations will be much lower than current projection rates as they will show the value of future pensions in today&#39s money.

Annual statements currently show what contributions have been made in the past year and how big the fund is.

But under the new DWP basis, from April 2003, statements will have to show what annual income this will buy in retirement.

The actuarial profession has developed the basis for the illustrations, which assume a 7 per cent growth rate with inflation at 2.5 per cent. They also assume that a retail price index annuity is bought at retirement with a 50 per cent spouse&#39s pension. These assumptions will be kept under review.

The FSA is currently consulting on its point-of-sale projections, which illustrate funds at 5, 7, 9 per cent, to bring them in line with the new DWP illustrations.

The regulator is propo-sing that the DWP illustration should be included alongside its current projection rates, which some providers say will only add to consumer confusion.

Friends Provident technical manager Chris Bell-ers says: “Someone wishing to save through a pension will receive so many figures and different permutations they will throw their hands up in confusion. A single projection on a standard basis, as the DWP proposes, is the simplest piece of information a saver needs.”

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