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New regulations means that thousands of savings illustrations need to change

20th Nov 2013

70% of product providers believe there should be an industry standard for growth rates.


The regulator is trying to simplify illustrations and create a level playing field across all savings and pension products. Pre-retirement Illustrations are to be based on inflation adjusted figures from April 2014. The FCA Conduct of Business rules contain guidance on client friendly illustrations.


CTC's recent survey on future illustrations found that life offices and wealth/SIPP managers overwhelmingly believe regulatory changes introduced to Illustrations are positive for consumers with only 7.5% of respondents believing there to be a negative impact. There is wide adoption of the use of realistic growth rates with over three-quarters of providers currently using realistic growth rates. However, there are many concerns about the changes required.   


Providers are worried about the consequences of inconsistent use of growth rates. The combination of lower projection rates and inflation adjusted figures could act as a disincentive to save. ISAs being projected on a nominal basis could well look better in comparison than a pension projected on an inflation adjusted and lower rate of growth. The growth rate used may set false expectations amongst consumers.


70% of respondents believed there should be an industry standard for growth rates and 58% of respondents plan to make illustration changes before the rules are in place April next year. 


67% of respondents stated their pre-retirement illustration was five pages or more. Simplification will reduce the amount of paper used. Two thirds of respondents enable intermediaries or clients to print illustrations themselves or are considering doing so.  There are also a high number of providers (58%) who let advisers select their preferred growth rates. The CTC survey shows that the industry welcomes the reduction in paper usage for illustrations.   


Nigel Chambers, CEO of CTC says, "it‘s no surprise that there is widespread industry disarray with the regulator's rule changes for illustrations. There will be financial adviser and consumer bias towards products that use higher growth rates. As financial advisers can choose the growth rate they prefer, consumers could end up with different illustration numbers from adviser to adviser for the same fund. This outcome is against everything the RDR stands for". 

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