RegulationApr 9 2014

New illustration rules may deter savers

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The chief executive of financial services software provider CTC Software said the new rules, outlined in the FCA’s 24-page PS13/2 inflation-adjusted illustrations for personal pensions policy statement, may act as a disincentive to save.

The new rules came into force on 6 April and introduced a requirement to simplify and reduce the illustrated value of pensions.

However, Mr Chambers said the new rules, which are designed to help consumers plan more effectively for retirement, might deter savers due to the combination of lower growth rates and inflation-adjusted figures.

He said: “Isas being illustrated on a nominal basis could look better in comparison to a pension illustrated on an inflation-adjusted and lower rate of growth. The growth rate used on the investment may set false expectations among consumers.

“As advisers can choose the growth rate they prefer, consumers could end up with different illustration numbers from adviser to adviser for the same pension fund. As a result, there may be financial adviser and consumer bias towards products that use higher growth rates.”

He added that with more than 33,000 companies auto-enrolling this year, the illustration provided to employees would be different if the pension contributions were paid into a contract-based auto-enrolment scheme or a master trust-based scheme, adding to the confusion.

Mr Chambers said: “It is no surprise that consumers will be confused when they see the lower illustrated value of their pension plan for the first time. This is a complicated subject that has received little publicity.

“We urge the regulators to make a true level playing field for illustrations before investors are turned off from investing in pension funds due to confusion and a lack of trust.”

Adviser view

Mark Edley, director of West Yorkshire-based New Leaf Financial Services, said: “The transparency which came post-RDR is clearly good, but clients are being put off somewhat when they see what they are getting.”