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New regulations mean that thousands of pension illustrations will show lower returns

4th Apr 2014

Investors will be shocked to see for the first time a realistic valuation of their pension savings 

Press coverage in

FT Adviser - 9th April 2014

Pensions Age - 7th April 2014


On 6th April 2014, the rules FCA PS13/2 surrounding pension illustrations will come into force. They will simplify and will reduce the illustrated value of pensions. Future illustrations are to be based upon inflation adjusted and realistic growth figures. The regulator believes that these changes will help consumers plan more effectively for retirement.


The combination of lower growth rates and inflation adjusted figures could act as a disincentive to save. ISAs being illustrated on a nominal basis could well look better in comparison than a pension illustrated on an inflation adjusted and lower rate of growth. The growth rate used on the investment may set false expectations amongst consumers.


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 pension fund. As a result there may be financial adviser and consumer bias towards products that use higher growth rates.


As over 33,000 companies auto enroll this year, the illustration provided to employees will be different if the pension contributions are paid into a contract based auto enrolment scheme or a master trust based scheme, adding to the confusion.  


On a positive note, illustrations are to be more client friendly and simplified as pension illustrations can be five pages or more long. Simplification will reduce the amount of paper used and should assist understanding.  

Nigel Chambers, CEO of CTC says, "it‘s no surprise that consumers will be confused when they see the lower illustrated value of their pension plan for the first time. This is a complicated subject that has received little press coverage. Investors in pensions need to understand the new rules so they do not become distressed".


"We urge the regulators to make a true level playing field for illustrations before investors are turned off from investing in pension funds due to confusion and a lack of trust"

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