Scottish Widows has become the latest life group to cut the projection rates on its with-profits fun...
Scottish Widows has become the latest life group to cut the projection rates on its with-profits fund range.
The move came as The Annuity Bureau labelled the FSA's mandated rates as misleading and unrealistic, and marks the second phase of the group's ABI mortgage endowment reprojections.
The Bureau said present earning estimates of 5%, 7% and 9% need to be revised in line with market conditions, as the present projections are misleading policyholders into believing that they will earn more from their investment than they actually will.
Under FSA regulations, life offices must inform investors that the income to be earned on with-profits annuities is one of the projected bands of 5%, 7% or 9%.
Peter Quinton, managing director of The Annuity Bureau, said the bands should be lowered to 3%, 5% and 7%, which would be more in line with life offices' actual with-profits investment performance.
Earlier this year, Prudential and Scottish Mutual announced a total bonus declaration of 3% on their with-profits annuities, while Norwich Union declared 4% ' all well below the FSA's projection requirements.
Quinton added that with markets so low, it is a good time for imminent retirees to consider investment-linked annuities, as the market is likely to rise over the duration of investors' retirement.
'But their expectations must be correctly managed at the current time. When the market picks up, the figures can be increased accordingly,' he said.
The bands were last adjusted in July 1999, before which they stood at 6%, 9% and 12%.
Rates of 4%, 5% and 6% will be used for most of Scottish Widows' funds in the second phase of its reprojection mailings, which covers the next nine months.
In Scottish Widows's phase one mailings, the standard FSA projection rates were used, but the regulator grants providers the right to lower projected growth rates if they do not believe the standard rates to be realistic. However, the group is to continue using the standard rates for its equity-linked funds.
Ian Thompson, managing director of operations at Scottish Widows, said that the reduced projected growth rates used in the second phase reprojection mailings were symptomatic of the current market environment.
'It is vital we provide information that is as realistic as possible. In the current market, we believe a lower projected rate is more appropriate for some funds.
'In particular, with-profits funds typically now have a significantly lower equity content than previously,' Thompson said.
He said lower projected rates could lead to some people switching out of the funds but stressed they should consult an adviser prior to such a move.
'Failure to pay attention can result in enforcement'
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