How do you work out your projection rates?Mon Apr 30 15:57:00 BST 2018 Back to results
This information applies to Aegon pension funds only.
We make assumptions based on our best estimate of the annual returns we expect certain types of investment (asset classes) to produce over the medium to long term.
For funds investing in a single type of investment, we use the following growth assumptions:
|Investment type||Pension funds (mid-growth rate) uncapped||Pension funds (mid-growth rate) capped|
Source: Aegon UK. These growth rates are assumptions and are not guaranteed.
Please note: these are the returns we estimate for each asset class, not the returns you’ll see on your illustration, which will be adjusted for inflation. In addition, in line with Financial Conduct Authority (FCA) regulations, if our estimated return for a fund at the mid growth rate is above 5%, we’ll reduce this to 5% on your illustration before allowing for inflation. This is referred to as the ‘capped’ rate. You’ll only see the capped rate if you’re a financial adviser setting up a new plan or an investor viewing your plan details via our online services.
For funds investing in a mix of investment types like those shown above we calculate a mid growth rate based on the percentage invested in each investment type multiplied by the appropriate rate for that investment type.
For example, for a capped rate, if a pension fund has 60% invested in overseas equities, 30% invested in government bonds and 10% in cash, the calculation would be as follows:
|% invested||Assumed annual rate of return||Weighted annual rate of return |
(% invested x assumed annual rate of return)
|Overseas equities||60%||7.0% but capped at 5%||3.00%|
Source: Aegon UK.
The weighted growth rate of 3.47% is then rounded down to the lower 0.25% i.e. to 3.25%. Again, on illustrations, these would be further reduced for the effects of inflation for pension funds.
For certain funds that use different investment types other than those shown above, such as absolute return funds, we do not use the assumptions outlined in the table above.
We regularly review our projection rates and will change them from time to time. These rates are effective from April 2017.