CTC Software Market Review 2018

Growth Rates by Asset Class

An assessment of growth rates used in the retirement savings industry for illustrations and projections

Following the introduction in 2013 of the FCA’s realistic growth rates rules where providers can use 3 different projected growth rates as they think appropriate, CTC has annually researched the projected rates insurers and SIPP providers use with a belief that nobody else independently researches this area.

This year 30 companies have provided to CTC the growth rates they use for seven different asset classes: Government and Corporate bonds, UK and overseas equities and managed portfolios.  

Many experts maintain that historical investment performance is the only data that can be used to project future performance. CTC’s growth rate research proves that this may be true. CTC also believes that it is important for investors to know that growth rates used in illustrations may be different when considering a like for like investment with the same charges as the projected returns will differ and will influence investment choice.  

The CTC Growth rate research shows that there is stability in growth rates projected when compared to previous annual research. Nigel Chambers, Actuary and Chairman of CTC believes this steadiness will be beneficial to many investors as financial planning should start from a stable base. Reacting to short term market movements is not the right way to plan for a retirement income that may be spent in 30- or 40-years’ time.  

Over the last 50 years the returns from gilts has been 2.4% p.a. and for equity 5.7% p.a.* Is it that past performance really is indicative of future investment returns?  *Barclays Equity Gilt Study 

Remarkably, the CTC Growth rate research shows that the industry is projecting average mid rates for UK equities of 5.6% and overseas 5.7%. Gilts projected growth rates are 2.4%.

Average mid growth rates used

%

Average mid-rate

%

Average mid-rate

Bonds Government

2.4

Managed Portfolio Cautious

3.7

Bonds Corporate

3.1

Managed Portfolio Standard

4.8

Equity UK

5.6

Managed Portfolio Optimistic

5.6

Equity Overseas

5.7

  

From 6 years of CTC’s data there is a convergence of the lowest and highest growth rates used across all asset classes, but the range could still lead to confusion.

Another area that may add to investor confusion is that Insurers use varying growth rates with a larger range of spread more than SIPP providers do.

To download the full 2018 report, click here

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