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Government regulations have introduced the SMPI into the yearly statements which are issued by pension providers to members of money purchase pension contracts for annual benefit statements issued for years ending on or after 6 April 2003.
The SMPI basis is significantly different from the FSA projection bases which have been required for regulated products such as personal and stakeholder pensions for some years ‘point of sale’. New FSA rules which may adopt a similar approach are expected in 2004.
Members may find their first SMPI is appreciably lower than the current FSA projections, potentially creating concern, but it is generally recognised that for the first time, the pension industry will be using realistic projections.
The SMPI assumes that current contributions continue to retirement age and that the member's current contracting-in/out status is maintained. It will feature a single pension figure calculated on the basis of an RPI-linked annuity, assuming that the tax free lump sum is not taken, and including a 50% spouses pension if the member is married. This is not to say that there has been any change to the rules at the point that the pension is eventually taken.
The new illustrations will also take into account the current life expectancy tables, including a members date of birth. It is estimated that someone born in 1985 will have a longer life expectancy that someone born in 1945.
The potential value of the fund need not be shown, but some providers may show additional figures including those on the previous basis for comparison..
The new rules will not apply to Retirement Annuity Contracts or Section 32 Buyouts.
See also NIC Summary, Retirement, Pension Contributions, Stakeholder Pensions.
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