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FRC proposes removing cap on assumed investment returns

The Financial Reporting Council has published a draft revision of the standard governing investment return assumptions used to calculate Statutory Money Purchase Illustrations

19 Nov 2012

By Jack Jones

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THE FINANCIAL REPORTING COUNCIL has published a draft revision of the standard governing investment return assumptions used to calculate Statutory Money Purchase Illustrations.

The updated standard TM1 removes the current 7% cap on assumed returns which the FRC said had come to be seen the default assumption by some actuaries, Financial Director's sister publication Professional Pensions reports.

Instead, the FRC will require providers to make justifiable assumptions that take account of the nature of their members' investments rather than using standard numbers.

It said this approach should produce information that is better tailored to savers' circumstances.

Chairwoman of the FRC's Actuarial Council Olivia Dickson, said: "Several million people receive Statutory Money Purchase Illustrations every year. Providers must think very carefully about the investment returns which they assume in these illustrations and take account of how much of each pension scheme member's fund is invested in cash, bonds, shares and so on."

The FRC is also encouraging providers to give pension savers information about the assumptions used on request so they can understand the basis of the illustrations the.

Dickson said: "Providers should document and be able to justify the assumptions on which the projected investment return for each member's fund have been calculated."

The FRC is consulting on the proposals and said their implementation will be carefully reviewed if they are adopted.

If, following consultation, these proposals are adopted the FRC said it will review their implementation carefully to ensure providers are making justifiable assumptions.

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