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LV= concerned over FSA projection rate proposal

Press release: 14/09/2012

In response to the FSA’s consultation on projection rates, Ray Chinn, LV= Head of Pensions comments: “We have concerns that the proposed new wording and guideline rates will not actually result in a better outcome for customers – which should be the key driver of these changes.

“Within the consultation it states that providers must offer “accurate rates”, our view is that this terminology gives false reassurances. It is important that a provider uses a rate that they believe reflects the true investment potential of a product at that point in time, therefore we would suggest using the term ‘realistic rates’. Similarly it is crucial that clients are made aware of the investment risks posed and are clear that projection rates are not a guaranteed rate of return.

“We are also concerned that by setting the rider rates at 3% either side of the intermediate rate consumers may still not receive a clear indication of the potential return, even at the lower projection rates. For example, if a client initially wishes to hold their investments in a bank account as a result of uncertain investment conditions, whilst they would benefit from reduced volatility, the realistic projection rate is likely to be lower than even the low end of the range proposed – especially once charges have been taken into account – potentially giving clients false expectations about long-term performance.

“Although other response has considered the benefits of stochastic modeling and other methodologies for predicting outcomes, these are often loaded with complexities which could further confuse and mislead customers. We believe that clients would benefit from a simpler regime with a consistent, industry standard, fixed intermediate rate per asset class which providers can easily use to produce an overall single blended rate reflecting the portfolio of assets. This would stop ‘growth rate arbitrage’ across providers and avoid the real risk of advisers falsely using projections driven by different growth assumptions to compare providers’ charges.

“While we of course support the principal that providers use reasonable projection rates, we feel that changes are necessary to the proposal to drive better outcomes for customers. We have seen providers ignore this requirement in the past and we also believe that there is a continued risk that some providers will simply switch to using the new protection rates as a default. It is important that the regulator enforces this requirement and makes it clear that providers can not use unrealistic rates with impunity.

“There has been some lobbying for an extension to the timescales to introduce these proposals, particularly where the scope of the regulations is being extended i.e. to SIPP providers. Although we have some sympathy with these arguments, given the current volume of regulatory change, we still believe that it should be possible to achieve this within a relatively short time period. Failing to do so would be failing customers. We believe our recommendations to simplify the proposals would help providers achieve a fair and consistent approach more quickly.”

For information on the FSA’s projection rates consultation go to

For further information about LV= please go to

About LV=

LV= employs 5500 people and serves over five million customers with a range of financial products. We are the UK’s largest friendly society and a leading financial mutual.

When we started in 1843 our goal was to give financial security to more than just a privileged few and for many decades we were most commonly associated with providing a method of saving to people of modest means. Today we follow a similar purpose, helping people to protect and provide for the things they love, although on a much larger scale and through a wide range of financial services including insurance, investment and retirement products.

We offer our services direct to consumers, as well as through IFAs and brokers, and through strategic partnerships with organisations such as ASDA, Nationwide Building Society and a range of trades unions.
LVFS is authorised and regulated by the Financial Services Authority, register number 110035. LVFS is a member of the ABI, the AFM and ILAG.

Registered address: County Gates, Bournemouth BH1 2NF.