Change to Pension Projections rules effective 6th April 2014

S e w e l l B r y d e n G u n n

Change to Pension Projections effective 6th April 2014
As of 06/04/2014, the Financial Conduct Authority (FCA) have dictated that pension projections must use ‘real’ (inflation adjusted) rates of return.Where previously it was acceptable to include a note explaining the impact of inflation, now projections “must show only the numeric value of the three real rates of return after the appropriate price inflation assumption has been taken into account, that is, the real rate of projected growth which has been applied to the real value of the contributions”.

They have also replaced the traditional 5, 7, and 9% projections with an ‘intermediate’ rate of real return and “lower and higher rates each maintaining a differential of 3% relative to the intermediate rate”.

For example, assuming inflation of 3% and an ‘intermediate’ rate of 3% real return, the ‘lower’ rate would be 0% (3% minus the set differential of 3); the ‘higher’ rate would be 6% (3% plus the set differential of 3).

(Source: FCA Policy Statement 13/02

http://www.fca.org.uk/static/documents/policy-statements/fsa-ps13-02.pdf).)
(Reference: FCA COBS Projections annex 
http://fshandbook.info/FS/html/handbook/COBS/13/Annex2)

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