Pressure on assurers to lower projections

When you buy a life assurance or pension policy, the salesperson or broker will quote what is known as an illustrative or projected value for your fund over the first five years of the policy and at maturity. This figure is expressed in a percentage and usually, a cash value, so that you can have an idea of what your regular one-off contributions will be worth, but only if the fund achieves that projected-growth rate. It is not a guarantee of the kind of return you can expect and it may or may not be achieved.

The maximum projected values permitted by the Irish Insurance Federation, which regulates these matters on behalf of its life assurance member companies, is 7 per cent for savings policies and 9 per cent for pension plans.

The reason for the discrepancy is that pension investment funds are not subject to the 24 per cent internal taxation that ordinary savings funds must pay; instead, the pensioner pays tax on the income received from the fund. With falling investment values and interest rates, life assurers here and in Britain are under pressure to lower the projection rates being quoted by sales people and companies. In Britain, where many Irish-based life companies have their head offices, the regulator for the life assurance industry is proposing that projection values drop by 2 per cent. The current percentage values permitted are 6 or 12 per cent depending on the risk profile of the customer. (In Britain this profile is established by a standard, formal factfind, which does not exist here.)

Here, the projected values are also being debated by the life companies, and will also probably be reduced, said a spokesperson for the IIF. The life companies were waiting for the Ministerial Order regarding costs disclosure of life policies to be signed, but this has now been done and it should only be a matter of time before the downward adjustments are made.

Industry sources told Family Money that the life assurers had been reluctant - for cost reasons - to publish new projection values on their policy documents until they see what other information they will have to include as a result of the Order.