Firms mislead consumers with pension projections

| April 12, 2012 | 0 Comments
Firms mislead consumers with over-generous pension projections

The Financial Services Authority (FSA) is calling for pension and insurance providers to reduce the estimates of returns used when marketing their products.

The regulator warns that firms are using over-generous forecasts which could be misleading for consumers.

It wants them to reduce the estimates of returns on investment products by at least 0.5 percent, following an independent study by PricewaterhouseCoopers LLP.

This would mean that the average estimate of return on an investment product which includes both equities and bonds would be reduced from 7 per cent to between 5.5 per cent and 6.5 per cent.

Firms currently use the standardised projections set out by the FSA, but PricewaterhouseCoopers’s study found that they need to be lowered to
reflect the downturn in the economy since the start of the financial crisis.

Reducing the standard projection rate would lead to the projected value of retirement income for millions of pensioner being cut by almost a quarter.

Peter Smith, head of investments policy at the FSA, said: “It is crucial that projection rates are set at a realistic level so that investors are not misled.

“We are seeking views on the range of rates so investors receive a reasonable indication of what they can expect from their investment.”

Meanwhile, the International Monetary Fund (IMF) has warned that a rise of just three years in the average lifespan of UK citizens would cost the state £750 billion in state and public sector pensions.

The IMF is calling on the government to take immediate action to avert the potential pension crisis, which could make public finances unsustainable.

Suggestions include increasing the age at which people can retire, demanding higher annual contributions or reducing payouts.

The UK government is already considering a proposal to link the retirement age to life expectancy rates.

Tags: , , ,


Comments (0)

Trackback URL | Comments RSS Feed

There are no comments yet. Why not be the first to speak your mind.

Leave a Reply


Visited 1403 times, 3 so far today