Financial Reporting Council changes to Statutory Money Purchase Illustration

Your guide to the new FRC changes for SMPI and how these affect your funds

What changes are Financial Reporting Council making?

The Financial Reporting Council (FRC) is changing the approach used to calculate projected pension fund growth rates for all UK pension providers that offer defined contribution (DC) pension plans.

The aim is to enable more comparable results across DC schemes and will come into effect from 1 October 2023.

The change for calculating the future growth rate of funds is outlined in the recently updated ‘Actuarial Standard Technical Memorandum 1’ (ASTM1). ASTM1 is a technical document that sets out the required approach for producing annual Statutory Money Purchase Illustrations (SMPIs) received by members saving for retirement in DC pension plans. You can find out more about the technicalities of this change on the FRC website.

What impact will the FRC change have?

For Standard Life funds, the FRC update will change how we calculate the projected growth rate on investment funds. This will impact the value projected on members’ Annual Benefits Statements. There is no impact on actual fund performance.

Before 1 October 2023, we calculated how much a member’s pensions could be worth at retirement using a growth rate. This rate was based on how we expected the funds invested to perform over time.

From 1 October 2023, all UK pension providers will use one of four future growth rates to calculate what members’ pension could be worth at retirement: 1%, 3%, 5%, or 7%. These rates are set by the FRC and are based on how much and how often the price of a fund has changed over the last five years. This is called ‘fund volatility’.

We’ve reviewed our largest 30 funds based on these changes, and as a result two will see growth assumptions rise, 14 stay the same, and the remaining 14 reduce.

Here are a few of our most popular funds as examples:

Sustainable Multi-Asset (PP) Pension Fund (CCHD) reduces from 5.5% pa to 5% pa
Sustainable Multi-Asset (AP) Pension Fund (DDNA) reduces from 5.5% pa to 5% pa
Standard Life Sustainable Multi Asset Growth Pn (LPNL) reduces from 5.5% to 5% pa
Standard Life Sustainable Multi Asset Pre Retirement Pn (CEMH) reduces from 4.5% to 3% pa
Standard Life Sustainable Multi Asset At Retirement Pn (PLND) stays at 3.0% pa
Standard Life Managed Pension Fund (FA) reduces from 5.5% pa to 5% pa
Standard Life Property Pension Fund (FM) reduces from 4.5% pa to 1% pa

What does the FRC change mean for your members?

If the new growth rate is lower than the rate we used last year, the pension fund value at retirement shown on your members’ statements could also be lower.

If the new growth rate is higher than the rate we used last year, the pension fund value at retirement shown on your members’ statement could also be higher.

The projected annual income figure assumptions will remain the same for most of your members. These assumptions are:

Annuity payments won’t increase
No dependents pension in the event of members’ death
If the member dies within the first five years, the payments will continue to the end of the five-year period
No tax-free lump sum is taken

Members' Annual Benefit Statements will include a link to a web page that explains the changes and what these mean for their projected retirement value.

: The changes apply to Statutory Money Purchase Illustrations (SMPIs) included in Annual Benefit Statements. Personalised Video Statements will also be updated from 1 October 2023 to reflect the new approach.

New business illustrations and online pension tools and calculators will not be impacted, this is due to the fact we follow FCA calculation methodologies for these types of illustrations.
: No, fund performance will not be impacted. The change only impacts how we calculate future growth rates.
: From 1 October 2023, pension providers will use one of four future growth rates for each fund the member is invested in, these are: 1%, 3%, 5% or 7%. If a member is invested in a range of different funds, we may use a composite of that rate to project the fund (e.g. the member is invested 50% in a 1% fund and 50% in a 7% fund, the overall growth rate applied to the projected fund is 4%).

The FRC sets projected future growth rates based on how much and how often the price of the investment funds have changed over the last five years i.e. based on volatility.
: Fund volatility is a measure of how much and how often the price of the fund your pension invests in has changed over the time. If a fund’s price doesn’t change often and/or it changes by small amounts each month, it’s a lower volatility fund. If a fund’s price changes often and/or it changes by larger amounts each month, it’s a higher volatility fund.

Lower volatility funds have a lower assumed growth rate, higher volatility funds have a higher assumed growth rate.
: Annual Benefit Statements - and other relevant documents - will be updated to include signposting to a webpage where members/plan holders can find out more. The page will include detailed information, including a full explanation of the changes and why they have been made.
: Yes, we will regularly monitor and update the growth rates used when producing illustrations. There are several factors that can impact each illustration, such as, nominated retirement date, contribution levels and fund selection.
: The aim is to produce more consistent, comparable results across Defined Contribution (DC) schemes and to make the projections more suitable for a “pension dashboard” environment.

We understand the rates we are applying are consistent with those being applied across the market by our industry peers.

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Financial Reporting Council changes to Statutory Money Purchase Illustration

What changes are Financial Reporting Council making?

What impact will the FRC change have?

What does the FRC change mean for your members?

Frequently asked questions