Using "unrealistically low projection rates" will deter people from saving and make it harder for consumers to decide between different funds, Aegon has warned.
The Financial Services Authority (FSA) wants to cut pension protection rates from 7% to 5% to give consumers more realistic expectations of retirement income.
However, Aegon said the move is likely to deter people from saving entirely and could also prompt them into making poor investment decisions between funds.
It made the comments in its response to the FSA Consultation Paper CP 12/10 on product projections and transfer value analysis.
Aegon said watchdog's proposals were based on ‘arbitrary' investment assumptions - that a typical fund was invested two thirds in equities, and one third in bonds. It added the move to asset specific projection rates should already mean they "more realistically reflect likely returns on the actual asset mix of each fund".
Capping pension projection rates at 5% is unreasonably pessimistic for equity-based funds, it said, and there is "no justification" for reducing the cap from 7% provided funds currently investing in other asset classes use lower projection rates.
Aegon head of regulatory strategy Steven Cameron agreed it was unhelpful to give customers unrealistically high expectations of future returns, but said there was a risk of customer detriment if the FSA forced "unrealistically low projection rates" on the industry.
He explained: "The FSA notes that lowering projection rates could deter some people from saving at all and encourage others to save more. With the current squeeze on finances, we suspect more will be deterred than encouraged. But we're also against suggesting to people they need to save more than may be necessary allowing for a more realistic future growth rate assumption.
"Artificially capping projection rates for equity-based funds will make it much harder to select between funds on a risk/return basis. Under the FSA proposals, customers may be presented with little extra growth prospects from equities over bonds but will be aware of the extra risks."
The company proposed an alternative approach which leaves the cap unchanged but places more emphasis on making sure the projection rate used reflects the underlying assets in each fund.
Cameron added: "This simple extension of the current asset-specific approach will mean customers continue to get a realistic indication of what they might get back, without the consumer detriment risks in the FSA's proposals."
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