EV, financial services technology provider and leader in stochastic modelling since 1993, welcomes the FCA’s focus on the changing pensions market but warns that a potential two-year implementation lag could leave consumers at risk as Targeted Support arrives.
As the FCA consultation on the changing pensions market (CP25/39) concludes, EV is calling for urgent alignment between the evolution of guidance modellers and the imminent arrival of Targeted Support. While EV welcomes the FCA’s proposals to improve pension projections, the firm highlights a critical timing misalignment while Targeted Support is expected to launch this April, the final regulation for modellers may not be fully implemented for another 24 months.
This delay risks a period where consumers rely on tools that lack the realistic assumptions required by Consumer Duty. EV argues that leaving such a window open is a significant risk to the FCA’s broader goals.
“We can’t ask consumers to make life-changing financial decisions based on inconsistent data”, says Chet Velani, Managing Director at EV. “If Targeted Support is to build trust, the tools powering it must be reliable from day one. We believe firms should act now on the consultation’s intent rather than waiting for the final deadline.”
The necessity for this change is underscored by longstanding issues where unrealistic and inconsistent assumptions in current modellers frequently lead to consumer detriment. Setting Capital Market Assumptions (CMAs), which must account for varying asset returns, currency movements, and long-term inflation, requires a higher bar of care than the industry has historically provided. To ensure these tools build trust rather than confusion, EV calls for all guidance modellers, whether using deterministic or stochastic modelling, to have their assumptions reviewed and signed off by suitably qualified independent experts at least annually to reflect shifting market conditions.
Velani added: “This level of rigour is the only path toward solving the misleading results problem that has historically plagued the industry. EV’s experience shows that deterministic projections often struggle to present a realistic picture because they assume a constant level of future returns; notably, they often ignore sequencing risk, which can devastate a retirement plan if poor returns occur in the early years of drawdown. A further critical issue lies in the illustration of annuity rates. EV maintains that while using current market rates is appropriate at the point of retirement, using today’s rates to illustrate a purchase decades into the future is inappropriate and potentially misleading. Instead, firms should be encouraged to use realistic future estimates consistent with other economic assumptions.”
