FRC publishes ‘consistent and reliable’ standards for dashboards

This standard governs the assumptions and methods used to compile statutory illustrations of defined contribution pensions. Since the dashboards are initially planned for presentation purposes only, and not to make pension projections, providers and schemes will be expected to provide an estimated retirement income figure for their members, which relies on projected pot size.

The FRC published a paper in February explaining that, though updating AS TM1 regulations would entail more work for providers, not doing so would create inconsistent pension projections across providers, which it warned could “undermine public confidence in pensions dashboards and pension saving more widely”.

The initial proposal was to do away with the flexibility currently afforded in the determining of accumulation rates, projected fund values, and the form of annuitisation chosen, instead seeing these being prescribed for dashboards purposes.

The FRC also proposed aligning the sets of assumptions used for ERIs and statutory money purchase illustrations to avoid confusion and preserve confidence in the figures.

It put its proposals to consultation, which had to be extended in May after concerns were raised by various industry players, notably Aegon and LCP. 

Aegon criticised the plan to base pension projections on the historic volatility of fund performance, and to project unlisted assets at a real growth rate of zero, which it said ran contrary to the government’s stated aim of increasing DC involvement with unlisted illiquid assets.

LCP criticised the plans on similar grounds, warning that they could produce “perverse and unrealistic” results that could “confuse the public”.

Having extended its consultation in a bid to address these concerns and drum up support for its proposals, the FRC confirmed its changes on October 7, with the new AS TM1 version operative from October 1 2023.

It specifies that investments must be assigned into a “volatility group” based on monthly returns of the fund over a five-year period ending on September 30 — or the immediate previous date on which prices are published if these are not available by that date — preceding the financial year in which the calculation is performed.

FRC executive director of regulatory standards Mark Babington said: “The development of a consistent and reliable pension projection is a major step change, which will help users better understand their pension projections and to plan for their retirement.

“From the extensive engagement with stakeholders and industry, it is clear that there is overwhelming support for projections to be consistent across different pension plans.

“The FRC looks forward to continuing to work collaboratively with pension providers and other stakeholders ahead of the standard being effective from October 2023.”

John Parker, sales director at ISP dashboard provider CTC Pensions Technology, welcomed the standard changes. He said: “There has always been too much variation in retirement projections, and with the pensions dashboards on the horizon, it’s more important than ever that consumers can compare pensions fairly.”