We’ve updated the projection rates for asset classes on our illustrations10 August 2015 Back to results
We review the assumptions we make about asset class returns (equities, cash, property, bonds) on an annual basis to see whether they’re still appropriate given prevailing market conditions and our estimate of future expected asset class returns. Please remember, these are just estimates and are not guaranteed.
Following this year’s review, we’ve adjusted our projections for each asset class as shown in the table below. These are the ‘medium’ or ‘mid’ growth rates and took effect on 30 July 2015. All our illustrations were updated from that date to reflect our revised assumptions.
|Assumed annual rates of return|
|Life funds (mid value )||Pension funds (mid value )|
The new rates apply to all new business quotes and projected benefits on annual statements with effect from 30 July 2015.
Please note: these are the ‘raw’ returns we estimate for each asset class, not the returns you’ll see on your illustration which will be adjusted for inflation and charges (if you’re a pension investor) or just charges (if you’re an ISA investor). In addition, in line with FCA guidelines, if our estimated return for a fund at the medium growth rate is above 5%, we’ll reduce this to 5% on your illustration before allowing for charges and inflation.
Please be aware, if you’ve received an illustration recently, you may want to request a revised illustration to reflect the up-to-date projection rates.
Funds investing in a mix of investment types (asset classes)
Where a fund invests in a mix of investments, we’ll calculate a rate based on the percentage it holds in each investment type and the rates above to find the projected rate for that fund.
The following example illustrates how this would work for a pension fund:
|% invested||Assumed annual rate of return||Weighted annual rate of return |
(column 2 x column 3)
The weighted growth rate of 4.93% is then rounded to the lower 0.25% i.e. to 4.75% and finally would be capped at 5% should it exceed this. Again, on illustrations, these would be further reduced for the effects of inflation and charges (pensions) or just charges (ISAs).
For certain funds that use alternative approaches, such as absolute return funds the projection has been based on the fund’s target, for example UK Retail Prices Index + 3.5%.