Pensions Review: Rates of Return

Appendix L of the FSAs Specification of Standards and Procedures, published in October 1994, set out the original rates of return for calculating prospective loss and redress, which applied for the period 1 October 1994 to 31 January 1995. Appendix G set out the rates to be applied when calculating actual loss. A revised Appendix L and a note of changes to be made to Appendix G were last published by the FSA on 1 May 2002 with effect from that date.

Updated versions of both Appendix L and Appendix G, taking effect from 1 August 2002, are attached.

Notes for editors

1. The FSA announced details of its guidance, designed to establish a framework for reviewing past transfers and opt outs, on 25 October 1994. This had as its purpose the provision of redress to people missold personal pensions.

2. One element of the guidance involved periodic review, at three month intervals, of the specified rates of investment return. These rates of return determine how much it costs firms to provide redress by top-up of the personal pension in cases where reinstatement (the preferred form of redress) is not available.

3. At the thirty-first review, actuarial advice received by the FSA indicates that, on the basis of current investment conditions, the specified rates of return should be amended compared with those applied in the previous quarter.

4. Copies of the Pension Transfers and Opt Outs: Review of Past Business; Part II: Specification of Standards and Procedures are available from FSA Publications, price 25.00.

5. Copies of the Appendix L assumptions, applying for periods prior to the current quarter are also available on request..

6. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection of consumers; and fighting financial crime.

7. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.

Appended information

INTEREST RATES FOR ACTUAL LOSS ASSESSMENT APPENDIX G

 

Period Benefit increases linked to RPI Interest Rate % Benefit increases linked to LPI Interest Rate % Level Benefits Interest Rate % 1 October 1994 - 31 October 1995 4.3 4.8 9.0 1 November 1995 - 31 January 1996 4.1 4.6 8.8 1 February 1996 - 30 April 1996 3.9 4.1 8.3 1 May 1996 - 31 October 1996 3.8 4.3 8.5 1 November 1996 - 31 January 1997 3.6 4.1 8.3 1 February 1997 - 31 July 1997 3.6 3.8 8.0 1 August 1997 - 31 October 1997 3.6 3.8 7.8 1 November 1997 - 31 January 1998 3.4 3.5 7.3 1 February 1998 - 30 April 1998 3.2 3.3 6.8 1 May 1998 - 31 July 1998 3.1 3.2 6.5 1 August 1998 – 31 October 1998 2.9 3.0 6.3 1 November 1998 – 31 January 1999 2.7 2.8 5.8 1 February 1999 – 30 April 1999 2.7 2.7 5.5 1 May 1999 – 31 July 1999 2.4 2.6 5.3 1 August 1999 – 31 October 1999 2.2 2.3 5.3 1 November 1999 – 31 January 2000 2.4 2.5 5.5 1 February 2000 – 30 April 2000 2.4 2.5 5.5 1 May 2000 – 31 July 2000 2.4 2.5 5.5 1 August 2000 – 31 October 2000 2.4 2.5 5.5 1 November 2000 – 31 January 2001 2.4 2.5 5.5 1 February 2001 – 30 April 2001 2.7 2.7 5.5 1 May 2001 – 31 July 2001 2.7 2.7 5.5 1 August 2001 – 31 October 2001 3.0 3.0 5.8 1 November 2001 - 31 January 2002 3.0 3.0 5.8 1 February 2002 - 30 April 2002 3.0 3.0 5.8 1 May 2002 - 31 July 2002 3.0 3.0 5.8 1 August 2002 -   3.0   3.0   5.8

FINANCIAL ASSUMPTIONS: 1 AUGUST 2002 APPENDIX L

 These assumptions apply for calculations of:

• prospective loss; and
• redress

Validity:
All calculations done in the period 1 August 2002 to 31 October 2002

As at date:

All calculations of prospective loss and redress of prospective loss done in this period,
and the value of all personal pensions, should be done as at 1 August 2002

Discount rate

Years to retirement Rate % per annum 0 5.8 1 5.9 2 6.0 3 6.0 4 6.1 5 6.2 6 6.3 7 6.4 8 6.5 9 6.7 10 6.8 11 6.9 12 7.0 13 7.1 14 7.2 15-19 7.3 20-24 7.5 25-29 7.7 30 or more 7.7

 

The interest rate for annuities in payment is that for zero years to retirement.