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Providers snub cash projections

Only three pension providers are using lower projection rates for cash despite the FSA slamming insurers for overstating potential returns in its pension switching report in December.

LV=, Standard Life and Legal & General are now using lower projections but the lack of compliance by other insurers has prompted the Association of British Insurers to send companies a reminder of their “obligations under conduct of business rules to show realistic projection rates”.

Axa, Aegon, Aviva, Prudential, Zurich, Clerical Medical, Scottish Widows and Scottish Life are still using the 5, 7, 9 per cent standard projection rates for cash. Axa, Aviva and Scottish Widows say they are reviewing the rates they use. LV=, Standard Life and Legal & General are using lower projections varying from 2.25 per cent to 6.75 per cent.

In the pension switching report, the FSA said: “We were concerned that some providers seemed to us unlikely to be complying with the rules requiring lower projection rates to be used where the standard rates in the conduct of business sourcebook would overstate the investment potential and understate charges. We saw cases where the provider used the standard 5, 7, 9 per cent rates of return to project for cash.”

An Aegon spokeswoman says: “The vast majority of our customers who invest in cash do so on a short-term basis and we believe it would be misleading to project on cash-relevant rates over the longer term. However, we are looking into how we can make this more prominent in our illustrations.”

An FSA spokesman says: “Firms do need to meet our requirements, which have been clearly set out for some time. We are working with firms to make sure they take the necessary steps as soon as possible.

“If firms are not meeting these rules, the whole range of avenues will be open to us from supervisory action right through to stronger action.”


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  1. You Must Be Joking 20th August 2009 at 10:28 am

    What is the point of illustrations?
    The whole concept of illustrations is misleading, as the only thing that can be guaranteed is that NONE of the projections will be correct!

    We all know that no asset class performs in a “straight line” i.e. produce the same return year after year, so illustrations are just another example of trying to turn financial services into a science (i.e. maths)!
    The use of standard annuity rates at retirement, determined by the rate of growth assumed over what may be a 30 to 40 year term, is again a complete nonsence.

    In addition, the FSAs pension switching review made continued reference to reviewing investments over the policy term and obviously any action taken as a result of these reviews will further serve to make the illustration meaningless.

    Common sense would say that illustrations should not show a projected fund values (that is something that should be provided on an ongoing basis at annual reviews) as these will undoubtedly be misleading. Where does TCF come into play when one of the first documents given to a client is likely to be so far off the mark?

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