Fund-specific growth rates used in our illustrations
Because of the uncertainty of any future investment returns, we show three example rates of projected investment growth in our product illustrations – low, mid and high. The FCA has, in the past, set out standard values for the low, mid and high growth rates. From the 6 April 2014 these annual rates have been reduced from the 5%, 7% and 9% previously used to 2%, 5% and 8%.
These growth rates will now be used as our standard assumptions, but the FCA also asks us to use lower rates if we think that the standard assumptions overstate the potential growth of investments held within a particular plan. These lower rates are known as ‘fund-specific’ growth rates. Fund-specific growth rates apply for the following products:
Old Mutual International
- International Portfolio Bond - Life
- International Portfolio Bond - Redemption
- Collective Investment Bond
- Collective Redemption Bond
- Managed Capital Account
- Executive Wealthbuilder Account
Old Mutual International Ireland
- European Portfolio Bond - Life
- European Collective Investment Bond
As the following table shows, each asset is allocated to one of seven types, which determines the growth rates used in calculations.
Table of fund-specific growth rate
||Typical holding in an asset of this type
||Growth rate assumption
||Money held on deposit within a bank
||Mainly cash/money markets, or combined cash/money markets and fixed interest
||Mainly fixed interest
||Mixed holdings, with at least half in cash/money markets and/or fixed interest
||Mixed holdings, with less than half in cash/money markets and/or fixed interest
||Mainly direct holdings in property
The projections for each asset held in a plan are calculated using the relevant fund-specific rates. These are then totaled to provide the combined projection for each of the low, mid and high growth scenarios. We also include an equivalent single growth rate on the illustration for information.
The low, mid and high growth rates used in the above table are worked out using research data provided by an independent company. They are not guaranteed and are not minimum or maximum rates. We review the growth rates each year. The last rates review and the last classification were in April 2015.
To illustrate the potential growth of a £100,000 investment in a Old Mutual International Collective Bond, with 60% into an equity-type asset, and 40% into a fixed-type asset, we would calculate as follows:
|Low growth rate
||Equity asset £60,000 growing at 2.00% a year
Fixed asset £40,000 growing at -0.75% a year
|Mid growth rate
||Equity asset £60,000 growing at 5.00% a year
Fixed asset £40,000 growing at 2.25% a year
|High growth rate
||Equity asset £60,000 growing at 8.00% a year
Fixed asset £40,000 growing at 5.25% a year
A rebate is an amount negotiated between Old Mutual International Isle of Man Limited and a fund manager where the fund manager agrees to repay part of their charges. Such rebates are based on a percentage of the fund value and are passed onto the client by crediting the policy transaction account.
For a client to receive rebates, they must be invested in the fund at the date on which the rebate is calculated (usually the last working day of the month). This is regardless of the amount of time invested in the fund.
If a rebate applies to a fund, it will be shown in the illustration on the assumption that any applicable rebates will be payable for a period of 10 years at the current level.
Please note: the payment of rebates and the levels are not guaranteed.
This information is intended specifically for our UK-based customers and advisers, as it relates to rules defined by the Financial Conduct Authority (FCA), the regulator of the financial services industry in the UK.