11 April 2014

Changes to disclosure requirements April 2014

In addition to the far-reaching changes announced in the Budget this month, there have been a number of quieter changes in legislation which change the information requirements for both trust and contract based plans with effect from 6 April 2014.

The emphasis of these changes is to give customers a better understanding of what they may receive in retirement and how their investment decisions impact that.

Pension illustrations and statements for contract based pensions

A number of changes have been introduced which impact both generic and personal pension illustrations and statements.

The maximum annual growth rates used in pension projections will be reduced as follows:

Low rate Mid rate High rate
Rates prior to 6 April 2014 5% 7% 9%
Rates from 6 April 2014 2% 5% 8%

In addition to these lower growth rates, all projections in illustrations and statements will need to be expressed in real terms. This means that we will be required to show customers the impact inflation could have on their investment returns. All projections will take inflation into account by reducing growth rates by 2.5% a year.

These changes have been introduced by the FCA after research they conducted suggested customers find this approach easier to understand.

We're also improving our benefit statements for our trust and contract based customers as we're completely removing the FCA illustrations. Instead our customers will receive a single figure. We've done this to provide greater clarity for our customers, making it easier for them to understand their benefit statement.

What does this mean?

One of the consequences of illustrating in real terms, along with lower growth rates is that projections are more likely to contain negative effective growth rates. This would mean that that the future assumed growth on the fund would not keep pace with the level of inflation.

This does NOT affect the actual value of the fund a member has accrued at the date of the statement.

While the intention behind the changes is to give customers a more realistic idea of what their pension benefits might be worth at retirement, the figures may be quite stark.

There will also be an explanation in all of our literature to support any negative growth rates shown.

Lifestyling

Last year we made changes to our projections to ensure that the impact of the different phases of investment strategy are reflected for lifestyle profiles (for all schemes)

From 6 April, for plans that use a lifestyle in their investment strategy there is a new requirement to explain the concept to all members including the advantages and disadvantages of investing in a lifestyle profile.

Members must also be informed that lifestyle switching will be adopted and the date it will commence or that it has already commenced. This enables members to consider whether this approach is still appropriate for them.

Changes to tax rates, limits and thresholds

As happens every year there have been a number of changes to limits, thresholds and allowances. You can find a useful summary of the rates that apply for the 2014/2015 tax year here.

Changes to member facing literature

You will see a number of changes across our pre and post-sale member facing literature from April.

In all illustrations and statements we will use the new growth rates and will include wording to describe the effect of inflation. There will also be an explanation to support any negative growth rates shown.

New wording to describe the advantages and disadvantages of lifestyle profiles will be included in our fund fact sheets and in our guides to investing. It will be clearly signposted from other documents.