Pension, Insurance Firms Must Reduce Return Estimates, FSA Says

Firms selling pension and life insurance products must reduce the estimates of returns they use to market them by at least 0.5 percent, the U.K. financial services regulator said today.

The London-based Financial Services Authority said firms must reduce average estimates of a 7 percent rate of return for investment products that are a mix of equities and bonds to between 5.5 percent and 6.5 percent, based on the results of a study by PricewaterhouseCoopers LLP. The projected returns are “reasonable central estimates over a 10-15 year time period,” the report said.

“It is crucial that projection rates are set at a realistic level so that investors are not misled,” Peter Smith, head of investments policy at the FSA, said in an e-mailed statement. “Today’s independent research indicates that our maximum projection rates should be reduced.”

PwC carried out the last review of so-called projection rates in 2007, keeping them steady about a year before the collapse of Lehman Brothers Holdings Inc. and the start of a financial crisis that would plunge many Western countries into recession.

“Four years later the economic and market environment has changed substantially and this presents us with a number of distinct challenges which were not present in 2007,” the firm said in its report.

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