Home > Government, Money > UK Pension pots to plunge under new rules.

UK Pension pots to plunge under new rules.

By , 1st November 2012.

Millions of savers will see the predicted value of their retirement pots plunge by almost 40 per cent after the financial regulator ordered pension firms to cut their growth forecasts due to the global economic slowdown.

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The Financial Services Authority (FSA) said that from 2014 the predicted growth rates used to give investors an idea of what their pension pot will be worth when they retire must be significantly lower than they are today.

Currently pension companies use a so-called “intermediate projection rate” of 7 per cent in statements to savers. This means that someone in their 20s who earns £30,000 and saves £2,000 a year into a workplace pension can expect to have a retirement pot when they reach 68 of £540,000.

However under the new 5 per cent growth rate that firms will have to use, this pot will be valued at just £335,000. The change means that the person’s predicted pension income will fall from £10,400 a year to £6,430 a year, a drop of 38 per cent.

Experts said that the lower rate will provide a “dose of cold economic reality” to savers and will give them a more accurate idea of the money they can expect to receive on retirement.

As well as pensions, the new rules will also cover the expected growth of financial products including ISAs and endowments. From 2014 all statements about existing investments will use the new lower projection rates.

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