The Financial Reporting Council (FRC) is consulting on changes to pension projections to create more consistency once pension dashboards go live. Aegon has strongly opposed a proposed move to base projection rates on historic fund volatility.
It says this would be extremely difficult to explain to customers, and fears introducing such complexity could damage the whole intention behind dashboards of boosting member engagement.
Steven Cameron, Pensions Director at Aegon said: “We’re deeply concerned about the FRC proposals to change the methodology behind pension projections to be based on the historic volatility of a fund’s performance. The FRC’s is seeking greater consistency in the projection rates used by different pensions appearing side by side on dashboards.
“While it’s important that projections for the same pension appearing in different places such as dashboards and yearly statements match up, every pension an individual has will be invested in different funds and can be expected to generate different future returns.
“While there may be technical logic behind the proposals, we believe a volatility based approach will be almost impossible for most people to understand. This would be at odds with the FCA’s new Consumer Duty which seeks assurances from firms that customers understand communications.
“We want pension dashboards to be truly ‘game changing’, with every aspect designed to be engaging, useful and easy to use for pension savers. Introducing such a complex concept could put people off using dashboards completely, instead of a hoped for boost in engagement.”
Aegon is also concerned over proposals to project unlisted assets at a zero real growth rate. But it does agree there needs to be a consistent basis for turning funds into estimated retirement income.
“The Government is keen for schemes to invest more in unlisted, illiquid assets, believing this offers greater diversification and may generate higher returns as well as boosting economic growth.
“Returns on individual unlisted asset are hard to predict and the paper proposes using a zero real rate of return. But if schemes start holding some unlisted assets within their default funds, projected values would be lower than if all invested in listed stocks and shares, discouraging such investments, contrary to Government objectives.
“We do agree with proposals to set a consistent approach for turning projected funds into an estimated retirement income. While drawdown is now the most common approach, annuity rates offer a ‘proxy’ for illustrating a sustainable income and it’s important that the form of annuity used in dashboards and yearly statements match up. We believe the most meaningful approach would be to use single life annuities which increase in line with inflation.”
