Pension firms forced to slash growth rates

PEOPLE saving for pensions will see the projected size of their final pension pots slashed under new rules imposed by the financial watchdog.

The Financial Services Authority (FSA) yesterday confirmed that the projection rates used by pension companies to give investors an idea of what their pension will be worth when they retire must be cut significantly.

It plans to reduce the intermediate projection rate for tax-advantaged products such as personal pensions from the current seven per cent to five per cent.

The FSA said it was making the change to give consumers a more realistic impression of the investment returns they might receive.

The move, taken after advice from PricewaterhouseCoopers, comes despite opposition from pension providers which argued the drop was too large, and could actually deter people from saving.

In addition to pensions, the new rules will also apply to the expected growth rates for other financial products including ISAs, endowment policies and investment bonds. For non-tax advantaged products such as investment bonds, the intermediate projection rate will be cut from six per cent to 4.5 per cent. “The new projection rates reflect PwC’s independent and peer-reviewed report and reduce the possibility of consumers being given a false impression of the investment returns they might receive,” the FSA said.

The new rules will come into force from April 2014.