MPs have approved rules governing annual Statutory Money Purchase Illustrations (SMPI), which requir...
MPs have approved rules governing annual Statutory Money Purchase Illustrations (SMPI), which require life offices and advisers to explain in real terms what an individual should receive at retirement.
Unveiled this month by pensions minister Ian McCartney, the regulations set out in simple language what a pension pot is likely to be worth at retirement, how it has been calculated and what it is worth at that moment.
The changes, to be introduced in April 2003, require projections to be calculated using a single growth rate, rather than the upper/middle/lower range used by the FSA.
Members of the Institute of Actuaries' SMPI Working Party, including Stewart Ritchie, pensions development director at Scottish Equitable, which worked with the Department for Work and Pensions, said all calculations assume pensioners will take an RPI-linked annuity at retirement, that the tax relief for each individual is 22% gross and that growth on the fund is 7% per year. Annual management charges are assumed to be 1% for pensions and 4% on annuity purchase.
Members of all money purchase occupational schemes, stakeholder pension schemes and personal pension schemes will receive annual illustrations of what their future pension might be to give them a realistic idea of the spending power of their pension, as well as what it is worth in today's money.
Money purchase schemes are already required to tell their members what their pension pot is worth and how investments have been performing.
Of the changes to money purchase illustration rules, Scottish Life's Alisdair Buchanan, said: 'Advisers will find this an exercise because clients will turn to them as their first port of call. Face to face is going to be the most effective method of communicating the illustrations to clients, but advisers are not getting paid for it.'
Life offices will also have their work cut out for them as IT systems will need to be updated to cope with the changes and increased workload.
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