Work is already underway by the ABI and its members to prepare for yet another FSA review which will...
Work is already underway by the ABI and its members to prepare for yet another FSA review which will this time review all projection rates used for client illustrations and key features documents.
Although the FSA consultation is not expected at least until June, discussion about resetting projection rates has already begun as rates have not been adjusted since 1999, when market returns were much higher.
At present, KFDs must display lower, intermediate and higher rates of return for pensions (before retirement) and for Isas of 5%, 7% and 9%, while post-retirement pensions as well as life products and unit trusts carry projected rates of 4%, 6% and 8%.
Companies such as Scottish Widows have already taken the lead this week and lowered their projection rates to 4%, 5% & 6% on products such as endowment mortgages, because they no longer reflect the potential returns that clients should expect.
Members of the ABI's Life Insurance Management Committee have been looking at proposals which might arise in the FSA's discussion and consultation paper: Review of Economic Assumptions for projection of packaged products expected next month.
But it has also been looking at ideas laid out in CP170 - Informing Consumers: Product Disclosure at the point of sale - which asks whether it might be sensible to use a single projection rate, perhaps for short-term products, rather than three rates as applied under current rules. |
Other discussions suggest there ought to be a wider range of projection rates, rather than the restricted range currently displayed, to reflect the risk preference of the client and the make-up of the product or fund.
Life office officials say they've begun to engage in discussions with the ABI about projection rates ahead of the consultation's publication, as they need to ensure rates which are eventually agreed reflect future potential returns, rather than past returns.
Providers say they are also looking to encourage firms to exercise their right to adjust projection rates much more under the terms of FSA rules, and move them downwards if it will ensure the client can be sure about the maximum potential returns.
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