Pension providers should voluntarily include inflation calculations as part of new business Statutor...
Pension providers should voluntarily include inflation calculations as part of new business Statutory Money Purchase Illustrations (SMPI) as an industry standard, says Scottish Life, because it would provide consistency and help clients to recognise their 'true' potential returns.
A call to standardise SMPI documents - whether it be new or existing pensions business - is being raised by several pension providers and consultants, because there are concerns that the difference could lead consumers to think their pensions will be worth more than their projected value at maturity.
SMPI and the recognition and inflation on a policyholder's plan were introduced by the Department for Work & Pensions in April, however, the FSA decided it was not necessary to extend the same requirement on new business illustrations, to calculate how inflation will reduce the value of a pension.
So companies such as Aon Consulting, Scottish Life, as well as Legal & General have already elected to include inflation and adopt a standard format that consumers will recognize and understand, says Louise Murray, Group Pensions Marketing Manager at Scottish Life.
"What doesn't make sense is that best practice is not standardized," says Murray.
"It seems perfectly sensible, and reasonable, for the FSA to make it compulsory for companies to provide 'real illustrations' for new as well as existing business. Until they do there is a real risk more damage will be done to an already battle worn pensions industry and in order to prevent this the industry needs to take the initiative," she adds.
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