Pension Forecasts To Be Slashed By FSA
People are to get more realistic estimates of the value of their retirement pension pots under plans announced by the City watchdog.
The Financial Services Authority (FSA) said it will reduce the standard projection rates used to show possible future returns and the impact of charges.
The new calculations will show more realistic forecasts for consumers taking out personal pensions and life policies.
It said the move will reduce the possibility of Britons being given a "false impression" of the size of their potential cash pots.
Firms will have a year to implement the new projection rates, which come into force in April 2014.
Under the current system, companies must use projection rates to show what returns an investor might receive. These are not a firm guarantee but give an idea of what people might gain from their investment.
They are meant to give three different rates of return and revise them down if a product appears unlikely to achieve them.
The FSA has been consulting on plans to strengthen these rules after finding providers often fail to comply with this requirement.
Under the current system, a pension statement shows what a pension will be worth if it grows by 5%, 7% and 9%.
But the FSA said projection rates will be cut to 2%, 5% and 8% to make sure customers are not given potentially misleading or exaggerated information.
With historic low interest rates many people have found downward pressure on their investments, including pensions.
The changes could lead to people re-considering their plans for retirement.
At present, a 22-year-old earning £30,000 a year who contributes just under £2,000 annually to their pension is told that their projected pension income would be around £10,300 on retirement at 68, based on a mid-point growth rate of 7%.
But under the new mid-point growth rate of 5%, the projected income would be thousands of pounds less, at around £6,400, according to research from financial services provider Hargreaves Lansdown.
Tom McPhail, head of pensions research at Hargreaves Lansdown, said: "It is important to remember that these are just projections; they will have no impact on what investors actually get back from their savings.
"The one thing we can guarantee is that whatever projection rates are used, they will be wrong, simply because they are only projections - reality will be different."
what do you think?
""reality will be different"............ yep, that says it all folks !
Do if a 22year old saves £2000 a year upto the age of 68 and just put the money in a tin he would save £92000 so £6400 a year that's 14 years take him to the age of 82 . They would get state pension on top of that and if they saved the money in some kind of back theirs interest on top . So why save in a pension were they change you to look after your money. I have had a pension with so called good returns for the last 30 year's and their is less in the pot than I actually put in maybe I should have just put it under the bed . It's more scairemungering by the banks to get hold of your money
The perfect storm - coned and robbed of our pensions by successive Governments policies. Low interest rates it you have savings, which are still taxed! quantitative easing (printing money), higher retirement age, work till you die, but to get a job when you are over 50,is nigh on impossible and lat but not least the UK flooded with migrant workers. A big thank you to the Conservative, Labour and Liberal parties for destroying UK industry
Gave my private one up when they wrote to me saying that if I want a comfortable retirement I needed to raise it from 100.00 a month to 400.00. Comfortable for who (management fees), this has to be the biggest con ever. The only people that get good pensions are the public sector, they pay less in and get more out. But they are being asked to put more in today and should do. Public sector pensions are adding more then 1 trillion to out national debt. People want honesty with money but that will not go hand in hand with the financial sector. Bullshi7 and lies all the time when it comes down to your money. Why are banks offering basic interest rates at 0.5% for savers when it's your money, yet mortgages etc are over 2.5% on you borrowing theirs.
Pension forecasts in this day and age are pretty useless anyway. Expect nothing and hope for a pleasant surprise !