An open letter from NEST to Stephen Haddrill, chief executive of the Financial Reporting Council, regarding the recent closure of the consultation into Statutory Money Purchase Illustrations (SMPI) and its decision to remove the cap on growth rates.
Dear Stephen,
Automatic enrolment brings radical change to the retirement landscape. As a result, the Financial Reporting Council's recent draft revisions to Actuarial Standard TM1 are both timely and welcome.
We are pleased that the FRC has chosen to adopt changes very close to those set out by NEST (National Employment Savings Trust) in its consultation response. NEST is committed to making it easier for our members to make sensible decisions that impact their futures. Our response was underpinned by this core principle.
Individuals must have realistic expectations about what they may get out of saving for retirement. Only then can they be empowered to make informed decisions about their futures. We want members to have a good understanding of likely outcomes, by which we mean a probability of 95% or above. Only then can they make other decisions such as whether to contribute more or at what age they wish to take their retirement income.
The proposed revisions to TM1 represent another step in the right direction in the development of member projections and communicating pension outcomes. They will go a long way in helping members decide what is right for them.
The removal of the cap on growth rates and the requirement for greater transparency on the rationale behind investment assumptions are both strong drivers for positive change. They will establish a framework where providers will more readily adopt rates that reflect a scheme's specific investment strategy. They will also prompt a better debate about the likely risk and return attributes of different asset classes and investment strategies.
NEST is keen that these developments will in turn lead to further thinking and innovation in the industry. We look forward to the final draft of TM1 version 3 and improved reporting for millions of pension scheme members.
Yours sincerely,
Mark Fawcett, chief investment officer, NEST
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