The following is taken directly from the Daily Mail online on 2/11/2012. The article covers changes to be enforced by the FSA in relation to projections for pensions as from April 2014.
Whilst this will look like a slashing of pension funds, investors should note it is only the projections rates being adjusted. What actually happens in reality will be down to where pension funds are invested. However, it is likely to serve as a shock to many.
The action highlights the FSA's concern that the general public are not making sufficient provision for their own futures.
Personal pension holders in for a shock when estimates of retirement fund values are slashed from 2014
By ADAM UREN
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No false impression: The FSA has reduced its pension projection rates to make predicted returns more realistic.
Projection rates for personal pensions will be reduced by the Financial Services Authority (FSA) to give savers a more realistic view of their retirement fund.
Currently, providers of tax-advantaged products like personal pensions give people taking out a product an indication of possible future returns based on their pension fund growing by five, seven and nine per cent, while taking into account the impact of charges.
But the FSA has said these projections will change to two, five and eight per cent as of 6 April, 2014, to avoid consumers ‘being given a false impression’ of the investment returns they might receive.
It will mean a shock for personal pension holders opening their annual statements in 2014, as thousands of pounds of notional returns will be wiped off.
This means that someone in their 20s who earns £30,000 and saves £2,000 a year into a workplace pension can expect to have a retirement pot when they reach 68 of £540,000.
But under the new five per cent growth rate that firms will have to use, this figure will be just £335,000.
The change means that the person’s predicted pension income will fall from £10,400 a year to £6,430 a year - a drop of 38 per cent.
As well as pensions, the new rules will also cover the expected growth of financial products including ISAs and endowments.
As well as pensions, the new rules will also cover the expected growth of financial products including ISAs and endowments.
The FSA has given firms a year to implement the new projection rates.
It has also published new rules requiring Self-Invested Personal Pensions (SIPPs) operators to provide Key Features Illustrations to consumers to show how charges on their savings will impact upon their future return.
Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), said pension holders should give their savings a 'regular MOT' to manage the uncertainty over their eventual returns.
She said: 'People often struggle to plan their retirement and these new rates should offer a more helpful and realistic guide.
'We are in a low growth environment and have been for some time.
'It is pointless letting people hope for high returns that might never materialise.
'This is a reality check.
'The UK is not saving enough for its old age, so it is important to help people see how much they need to salt away.
'A reformed simpler, flat-rate state pension will also enable people to make stronger retirement plans.'
