The Institute and Faculty of Actuaries recently responded to a joint consultation by the Financial Services Authority (FSA) and the Financial Reporting Council (FRC) on projection rates and statutory money purchase illustrations (SMPI).
The Institute and Faculty of Actuaries recently responded to a joint consultation by the Financial Services Authority (FSA) and the Financial Reporting Council (FRC) on projection rates and statutory money purchase illustrations (SMPI).
One of the key proposals from the FSA was to reduce the maximum intermediate projection rate from 7% to 5%, reflecting the lower returns illustrated in a PwC report of 10 April for a fund composed of 67% equities and 33% bond investments.
Mike Kipling, chair of the working party formed to respond to CP12/10, said: "Consistency between the SMPIs and the FSA illustrations provides considerable value to customers. The FSA could have given more consideration to the suitability of projections issued to existing policyholders. A 5% maximum intermediate growth rate is not the most appropriate way of addressing concern that the current maximum rates are too readily applied. The maximum rate (for a 100% equity fund) could be set higher than 5%, and within the range recommended by PwC, namely 6.5% to 8%. This would be consistent with the FSA's intention to adopt PwC's recommendations."
