Economic slowdown sparks FSA ruling on pension pot calculation

Economic slowdown sparks FSA ruling on pension pot calculationThe figure that pension companies use to calculate the expected retirement pot of a saver is to be reduced from 2014, the Financial Services Authority (FSA) has ruled.Pension companies use an ‘immediate projection rate’ to provide savers with an indication of the amount their pension pot will be worth when they retire. The reduction in this growth rate from the current level of 7% to the new, lower rate of 5% will have a significant effect on the amount someone can expect to receive during their retirement.

One calculation under the new rules, which takes someone in their 20’s saving £2000 per year, would see the potential value of the pension fund available at 68 fall from £540,000 to £335,000 – representing an annual decrease of 38% in pension payments.

The change of course only reflects the paper value of an individual’s pension – the actual value will be calculated in accordance with the terms of the pension at the time it matures.

The announcement came last week following an independent review and a consultation with financial firms.

A spokesman for the FSA commented on the reduction in the central rate : “We think that people who are making a long term investment deserve to have a pretty good indication of what they are likely to get back”.

The reduction in the predicted growth rate of pensions is likely to come as quite a shock to savers, who will effectively see the forecasted value of their retirement fund slashed overnight. It is predicted that millions of savers could look to change their savings plans as a result.

The 2% drop in immediate projection rate will of course also effect the calculations made in relation to the value of pensions for calculations prepared for personal injury claims and also in divorces.

Frenkels Forensics are a specialist forensic accountancy firm, with extensive experience in assisting with the preparation of loss of earning schedules for personal injury and accident claims. It is essential that both claimant and defendant personal injury lawyers are aware of the changes being brought in by the FSA so the correct calculations regarding the value of pension pots can be made.  To disuss this in person please contact Vitek Frenkel on 020 8457 2929.

Read more here:
Daily Telegraph

Leave a Comment

For the latest updates from us, our industry and any other information we feel is worth sharing with our customers, please Sign up to join our email list...

Join Mailing List