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3rd Mar 2017
CTC’s market review of growth rates (used in Illustrations and projections) is in its fourth year and includes responses from 40 provider organisations. The review has been comprehensively covered in the trade press.
There remains considerable disparity in the rates used although the averages that come out seem reasonable and the outliers over the years have been reducing. This year we specifically identified that most providers determine their rates through market analysis and we are pleased that this review contributes to that.
In part from our own experience, we have a slight concern that growth rates used for SMPI purposes frequently differ from those used for the initial FCA illustrations; although, of course, this is partly due to the difference in rules. We would hope to see further convergence in the future in this regard.
As in previous years, the diversity of rates used for the projection of cash/deposit holdings particularly stands out and in part shows an ongoing concern relating to the presentation of negative rates of growth once inflation is taken into account. One of the core messages the pensions industry still needs to get across is that savings for the longer term need, in substantial part, to be invested in assets that can be expected to provide a real rate of return and is in part related to the complete lack of understanding amongst consumers generally relating to the balance between risk and reward. The billions of pounds invested in building societies and cash ISAs where consumers are effectively losing purchasing power year on year bears witness to this.
A distinction throughout the report is that the survey shows a clear difference between the two key categories of Insurers and SIPP providers. It is particularly notable that at least in some areas the SIPP providers seem to be more conservative in the growth rates they are using than the Insurers whereas many would have thought the opposite to be true.
Recent FCA research shows that consumers are more likely to react to numerical comparisons that take into account their own circumstances and amounts available for investment. At CTC we continue to believe that the provision of illustrations and the use of similar numbers in planning tools remain an important part in proving consumers understanding of the products the industry offers.
The full 2016 Growth Rate survey report is available from the CTC Innovation Centre or on request.