Time To Review Your Pension?
A consultation launched today by the Financial Services Authority (FSA) and the Financial Reporting Council predicted that pension projections will be substantially reduced due to changes to assumptions for annuity rates and investment returns.
The consultation proposes that the projection rates used for investment returns will fall from 7% to 5% and adjustments for tax-disadvantages products form 1% to 0.5%. Values projected for men’s annuity rates will reduce by between 10% and 17% due to the new rules on mortality projections as a result of men living longer and the new ECJ gender equalisation rules. Any increases that women may have seen due to the gender rules may also be negated by revised mortality projections.
The FSA commented that insurers have not reached any conclusions how the new gender rules will impact their annuity pricing but would reflect a joined up view of male and female rates. The proposed changes may be seen by the general public as a negative move and could see a reduction in the number of pension contracts initiated. This also may have a knock on impact on financial advisers. The reduction in investment return projection may on the other hand provide a more sound indication of what could be archived at retirement and encourage a higher level of savings
The FRC’s Board for Actuarial Standards Chairman Jim Sutcliffe, commented that “Millions of people receive Statutory Money Purchase Illustrations every year. These illustrations contain important information about how much people have already saved towards their pensions and what they might receive at retirement. The assumptions used for future returns need to be justifiable and reasonable.”
Author: Robert Trapnell- Right Retirement
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