What changes have been made to my yearly statement?
What is my yearly statement?
This is a statement we issue to you every year showing the value of your pension and how much your pension might be worth at retirement. The purpose of the statement is to keep you informed about your pension savings and to help you plan for the future.
What changes have been made to my yearly statement?
We’ve made changes to:
- The growth rate assumptions used in calculating the value of your projected pension value at retirement, and
- The shape or form of the annuity you are assumed to purchase at retirement.
The changes apply to all yearly statements produced on or after 1 October 2023 and are explained in more detail in the sections below.
Why have Royal London made these changes?
We’ve made these changes to comply with the revised assumptions set in rules by the Financial Reporting Council. The changes don’t affect your actual pension value and you’ll still be able to choose how to take your pension savings from the retirement options available to you at that time.
Have other pension schemes made these changes?
Yes. All pension providers must move to the new the assumptions from 1 October 2023. This is to ensure you get a consistent approach used by all providers and can compare your pensions more easily.
What changes have been made to the growth rates?
Why has my projected pension value changed so much since last year’s statement?
The growth rate assumptions used to calculate the projected pension value shown on your yearly statement have changed to comply with the new rules.
What changes have been made to the growth rate assumptions?
Previously the projected pension value was calculated using growth rates based on how we expected our funds to perform in the future. From 1 October 2023, all pension providers must use a standard approach with growth rates based on how the performance of your funds has varied in the past five years. This is referred to as the volatility of the fund.
How does the volatility of a fund impact the growth rate assumption?
The more volatile or variable a fund’s performance has been over the last five years, the higher the growth rate used in calculating the projected pension value for that fund. Conversely the less volatile the fund, the lower the growth rate used. This is because more volatile funds are expected to deliver higher returns over the longer term, but this is not guaranteed.
What has been the impact on the growth rates used by Royal London?
The growth rates used for some of our funds, in particular higher risk funds that invest in stocks and shares and property, have reduced. At the same time, the growth rates used for other funds have increased. This reflects the fact that Royal London offers well managed funds with low levels of volatility.
Are the growth rate assumptions likely to change again next year / in the future?
Yes. All pension providers must recalculate their growth rate assumptions each year based on how volatile their funds have been over the previous five years.
Does my projected pension value have any impact on my pension savings?
No. Your projected pension value is only an illustration of what you might get back, based on assumptions, and is not guaranteed. The size of your fund and level of pension that may be payable will depend on the future investment returns and level of contributions made.
What changes have been made to the shape/form of the annuity?
What changes have been made?
The shape or form of the annuity shown on your yearly statement may have changed. It is now:
- Single Life – previously it may have been a Joint Life annuity
- Level (no increase) – previously we may have assumed 3% pa escalation in line with inflation
- 5-year guarantee – previously there may have been no guarantee.
Some products may already use the new shape/form of annuity in previous yearly statements.
What is an annuity?
An annuity is an insurance product that allows you to swap your pension savings for a guaranteed regular income that will be payable for the rest of your life.
What is the difference between a Single Life and Joint Life annuity?
If you take a single life annuity, the payments will end once you die. Whereas under a joint life annuity, the payments will continue to a designated person after your death.
What is inflation?
Inflation is the increase in prices over time.
What is the 5-year guarantee?
We guarantee that if you die within five years of starting the annuity, we will make the annuity payments for the remainder of the five year term.
Why does the change result in a higher annual taxable income?
The previous assumption may have been for a Joint Life annuity which increases annually in line with an assumed 3% pa inflation. These features are more costly to provide which mean the starting level of annuity payments you receive would be lower.
What are the other considerations?
What do I need to do?
You don’t need to do anything, however you should review your pension savings regularly to ensure you are saving enough for your retirement.
I’m worried that the projected pension value won’t be enough for my retirement. What should I do?
The projected pension value is only an illustration of what you might get back based on assumptions. However if you remain concerned, we recommend that you consider speaking to a financial adviser. They can give you personal advice and practical help to make an informed decision.
Should I switch funds?
Before you make any changes to your plan with us, we recommend that you consider speaking to a financial adviser. They can give you personal advice and practical help to make an informed decision.
Why are the projected pension values in my yearly statement different from the other illustrations I have received or have access to digitally?
You’ll see a difference in the projected pension values shown on other personal illustration requests as these projection assumptions are set by the Financial Conduct Authority and not the Financial Reporting Council. They usually show three potential examples - low, mid and high - to give you an alternative idea of what your plan may be worth in the future.