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New wording won’t improve customer outcome: LV=

The FSA’s proposals for investment projection rates will not result in a better outcome for investors, Ray Chinn has warned.

By Simoney Girard | Published Sep 14, 2012 | comments

The head of pensions for LV= said the company was concerned that the City watchdog’s proposed wording and guideline rates, which it published in May this year, would not actually improve things for the consumer.

Mr Chinn said: “Within the consultation it states that providers must offer “accurate rates”, our view is that this terminology gives false reassurances.

“It is important that a provider uses a rate that they believe reflects the true investment potential of a product at that point in time, therefore we would suggest using the term ‘realistic rates’.

“Similarly it is crucial that clients are made aware of the investment risks posed and are clear that projection rates are not a guaranteed rate of return.”

He said he was concerned that, by setting the rider rates at 3 per cent either side of the intermediate rate, consumers may still not receive a clear indication of the potential return, even at the lower projection rates.

For example, if a client initially wishes to hold their investments in a bank account as a result of uncertain investment conditions, while they would benefit from reduced volatility, the realistic projection rate is likely to be lower than even the low end of the range proposed – especially once charges have been taken into account – potentially giving clients false expectations about long-term performance.

Mr Chinn added: “We support the principal that providers use reasonable projection rates, we feel that changes are necessary to the proposal to drive better outcomes for customers.

“We have seen providers ignore this requirement in the past and we also believe that there is a continued risk that some providers will simply switch to using the new protection rates as a default. It is important that the regulator enforces this requirement and makes it clear that providers can not use unrealistic rates with impunity.”

To read the FSA’s projection rates consultation, click here

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