FSA undertakes a fundamental review of Projections

Today's paper, Projections review the case for change, also sets out some broad options for change to provide consumers with better information about potential future returns.

The objective of the review is to devise a system that:

• provides information that is better understood by consumers and improves their decision making;

• provides information about potential returns and their variability, but aims for simplicity in presentation;

• ensures firms do not provide speculatively high projections; and

• where possible, allows more flexibility in the system and gives firms greater responsibility for working out the assumptions used to illustrate the potential returns on their products;

David Severn, FSA Head of Retail Investments Policy, said:

"The current "one-size fits all" regime is based on a broad brush approach and does not take sufficient account of different products' characteristics or the time frame for which the consumer wishes to invest. We are putting forward some ideas for changing the system, but we welcome other views on how the system can be improved. We have an open mind on what will best deliver the objectives we have set out. The current system has both strengths and weaknesses and we must be careful not to throw away the baby with the bathwater."

The work on projection rates will form part of the wider review of the information received by consumers. As part of that wider review, the FSA is putting further development into a Key Facts document which aims to simplify the information it requires firms to give to their customers and to ensure that risks associated with a product are explained clearly and effectively. This work will also include a look at whether there is a practical and consumer-friendly form of standardised risk indicator which can be adopted.

Responses on the broad options set out in the Paper should be received by 5 October 2004.

Notes for editors

1. The FSA Discussion Paper 04/1: Projections review - The case for change.

2. The wider review of product information (Key Facts) CP170 Informing consumers: Product Disclosure at the point of sale was published in February 2003. The FSA plans to consult on charges disclosure along with any formal proposals for change (if any) to its rules arising from this discussion paper in the first quarter 2005.

3. Current projection rates are for untaxed products (for example, pensions and ISAs): 5%, 7% and 9%. For taxed products (for example, collective investment schemes and mortgage endowments): 4%, 6% and 8%. These are used in packaged products such as ISAs and investment trust savings schemes, and in stakeholder pension decision trees, statutory money purchase illustrations and comparative tables. The rates are also used in the re-projection letters that indicate the extent of any potential fall in the maturity value of mortgage endowment policies.

4. In order to help to illustrate the different ways in which information about potential future returns could be presented both in a general way or product specific, the discussion paper also includes a few examples of what consumer information might look like these can be found in Annex 5.

5. 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.

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