As of 6th April, Prestwood Software has been updated with the relevant changes announced during the 19th March 2014 Budget Statement. These include the 10% savings tax rate being abolished from 2015/16 and individuals being able to transfer 10% of their personal allowance between spouses from 2015/16. Drawdown Pensions have also been changed in line with current legislation, which allows an individual to withdraw an income of 150% of GAD after 26th March 2014.
Changes to pension projections:
As of 06/04/2014, the FCA have dictated that pension projections must use ‘real’ (inflation adjusted) rates of return.
Where previously it was acceptable to include a note explaining the impact of inflation, now projections “must show only the numeric value of the three real rates of return after the appropriate price inflation assumption has been taken into account, that is, the real rate of projected growth which has been applied to the real value of the contributions”.
They have also replaced the traditional 5, 7, and 9% projections with an ‘intermediate’ rate of real return and “lower and higher rates each maintaining a differential of 3% relative to the intermediate rate”.
For example, assuming inflation of 3% and an ‘intermediate’ rate of 3% real return, the ‘lower’ rate would be 0% (3% minus the set differential of 3); the ‘higher’ rate would be 6% (3% plus the set differential of 3).
(Source: FCA Policy Statement 13/02 http://www.fca.org.uk/static/documents/policy-statements/fsa-ps13-02.pdf).
(Reference: FCA COBS Projections annex http://fshandbook.info/FS/html/handbook/COBS/13/Annex2)
