The financial Services Authority is planning to clamp down on companies that may be using unrealistic rates of return to promote their savings products. A dramatic fall in the amount companies invest in equities, which have traditionally provided higher rates of return over the long term, means that many firms may now be overstating the projections they give to customers.
The FSA's move will mean companies that are invested heavily in bonds start to use more conservative projections when illustrating the growth potential of their products. It is likely to see thousands more savers with endowment policies being told their policy is in the red and unlikely to pay off their mortgage. Michael Folger, a director at the FSA, said: "Firms should ensure the rates they use in their endowment mortgage projection letters do not overstate the investment potential of the contract."
Firms selling pension, endowments and Isas are required to give customers a projection of what their policy might be worth based on investment growth assumptions.Reuse content