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27th Jan 2014
2013 - 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. Currently the standard mid growth rate used for Illustrations is 7% (flanked ±2% for upper and lower rates). The regulator has said that this rate should only be used as a maximum and that rates should more closely reflect the performance of the underlying assets.
Some life and pensions providers have been using fund/portfolio specific rates - which can amount to hundreds of different rates while other providers are illustrating at the current 7%. Financial advisers are now given the ability to select illustration rates. So exactly the same investment can be illustrated with inconsistent growth rates and different projected returns. These factors are causing the consumer considerable confusion.
In April 2014 the flanking rates will become ±3%, and secondly projections will be shown on an inflation adjusted basis. This could very easily see lower rates showing a negative return.
The combination of lower projection rates and inflation adjusted figures could act as a disincentive to save. Recent CTC research shows 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 in April 2014.
The CTC market review of growth rates can be found in the CTC Innovation Centre