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28th Jan 2016
2015 - The CTC Growth Rate survey is an annual review of growth rates used in Illustrations and projections. Companies are asked to provide their mid-rates across a number of asset classes.
This is the third year the survey has run. The full report can be found in the CTC Innovation Centre.
There were forty responses from 38 providers including insurers, platforms, SIPP providers and Wealth Managers. Companies participating were:
@sipp Plc, Ascentric, Aviva, AXA Wealth, B&CE, Barnett Waddingham, Brown Shipley & Co, Brunell Trustees, D P Pensions, Fidelity, Friends Life, Gaudi, Greyfriars Asset Management, IPM SIPP Administration, Intelligent Money, Investacc Pension Administration, Investec Wealth & Investment, James Hay, JLT, Legal & General, Liberty Sipp, Liverpool Victoria Friendly Society, Metlife, MW Pensions, Old Mutual Wealth, Organon SIPP Services, Parmenion, Prudential, ReAssure, Sippchoice, St James's Place, Standard Life, Suffolk Life, Talbot and Muir SIPP, Walker Crips, Whitefoord, Xafinity SIPP Services, Yorsipp
The report includes commentary from PA Consulting and Nigel Chambers FIA, Managing Director of CTC.
Vaughan Jenkins, PA Consulting
It is hard to believe that next April marks a decade since A-Day and the simplification of the pension regime. Over that time we have seen many more changes and 2016 sees no let-up in the potential for radical reform. One consistent thread throughout has been a focus on consumer outcomes and informed choice, enabled through greater transparency of pricing, terms and conditions. How much clearer the picture is now for consumers than 10 years ago could be debated but there is certainly further to go.
Pension providers and intermediaries have an important part to play in this. Sellers in this market continue to have an advantage over consumers – there is an information asymmetry which leaves the buyer at risk and places an added duty upon the supply side. This makes trust and confidence central to the operation of a healthy market. The ability to exercise choice under the Pension Freedoms without adverse selection requires the industry to be fair and open especially in creating an environment where offers can be compared. Later life customers have limited options to recover should they make poor choices which will dictate their lifestyles deep into old age as well as affecting any legacy they may have hoped to pass on.
The results of this important survey suggest that the FCA’s concerns over growth rates and how these might be used for competitive advantage have some foundation. The variation in approaches and the absolute numbers used are revealing. It seems inevitable that steps will be taken to provide consumers with better data to make sensible choices.
Last October the UK Financial Capability Strategy was launched. Research by MAS and others has highlighted the hand to mouth existence of many consumers, with little or no resilience to financial shocks as a result. Financial education and support to interact with the financial services industry effectively are amongst the remedies to tackle the gap in trust and confidence. Pension providers have an opportunity to play a part in improving this situation and how products and outcomes are portrayed is key to this. Let’s hope the next decade sees consumers treated ever more fairly and the industry gaining strength from it.
Nigel Chambers FIA, CTC Software
Two key observations…
• There are still a number of SIPP providers using a 5% mid-point growth rate as a standard across all asset classes. Although this may be understandable at the point of a new business application where no indication of investments have been obtained, it does not seem to tie in with the FCA’s view that a SIPP administrator needs to understand the underlying investments in a client’s portfolio. For example, CTC believes they would expect the growth rates to be used in Drawdown Illustrations for existing clients to reflect something closer to their actual holdings. It would be surprising if all clients were in assets that could fully justify using the top 5% rate. Perhaps the use of standard rates is simply down to the inability of systems to allow for a wider range of growth rates.
• At the other end of the scale CTC remains surprised that there remain a number of providers (although a reducing number) quoting mid-rates in the range 7/8%. These seem to be out of step with the market generally. They also seem to be conflicting with the FCA’s comments in CP15/30 implying a maximum to be applied on an asset class by asset class basis of 5%.
Looking more generally at the market we are seeing increasing use of planning tools that provide illustrative numbers before a formal KFI is produced. These tools are not always consistent with the growth rates being used in the Illustrations that a customer will ultimately need to receive. It is CTC’s belief that in any customer journey the use of consistent assumptions and calculations can reduce the possibility of later confusion when the formal KFI’s are produced.
In a world where there are an increasing number of execution only clients, with no intermediary standing between the client and the provider, this becomes even more important. It is this growing “mass middle” market that will most benefit from clever overall messaging – and where everyone will benefit from more consistency between providers.