Yet more new legislation is on the horizon, in a bid to further simplify pensions, savings and investments for the consumer. Currently, when you buy a financial product, you will be given an illustration of possible future benefits. These benefits will be shown at 3 different rates of growth.
What most consumers do not understand is that charges, deductions and expenses from the investment will reduce the returns. Whilst this is shown on an illustration (as the Reduction In Yield), how many people really understand what it means?
Basically, a Reduction In Yield is a reduction in what you might get back because of the charges.
As an example, using a Stakeholder Pension with a 1% annual charge would bring a 7% investment return down to around 6%. The Financial Services Authority (regulator of the industry) is looking into this matter and wants illustrations simplified.
Opinion:
This cannot come too soon because consumers must understand what they are buying in order to properly plan their future.
Hopefully, once illustrations are simplified, investors will be able to see the companies that make over the top charges and can then choose value for money products.