A potential 'guidance gap' could undermine the successful rollout of targeted support if reforms to pension modelling tools are delayed, EV has warned, as the Financial Conduct Authority’s (FCA) consultation on adapting its requirements for a changing pensions market closes.

The financial services technology provider, which specialises in stochastic modelling, said that while it welcomed the FCA’s focus on improving pension projections, a potential two-year implementation lag for new modeller rules risked leaving consumers exposed.

Targeted support is expected to launch in April, but EV noted that final regulation for pension modellers may not be fully implemented for up to 24 months.

It argued that this misalignment could create a period during which consumers relied on tools that did not meet the more robust assumptions required under Consumer Duty.

EV managing director, Chet Velani, warned that "we can’t ask consumers to make life-changing financial decisions based on inconsistent data".

"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," he added.

The firm stressed that longstanding issues with unrealistic and inconsistent assumptions in existing guidance modellers had frequently led to consumer detriment.

In particular, it highlighted the complexity of setting capital market assumptions (CMA), which must account for varying asset returns, currency movements, and long-term inflation.

EV argued that these assumptions required a higher level of governance than had historically been applied across the industry.

Consequently, it called for all guidance modellers - whether deterministic or stochastic - to have their assumptions reviewed and signed off by suitably qualified independent experts at least annually to reflect shifting market conditions.

Meanwhile, the firm also raised concerns about deterministic projections, which it said typically assumed a constant level of future returns and often failed to account for sequencing risk - where poor early returns in drawdown could erode retirement income sustainability.

In addition, EV questioned the practice of illustrating future annuity purchases using today’s market rates.

While it acknowledged that current rates were appropriate at retirement, it argued that applying them to purchases projected decades into the future could be misleading.

Instead, firms should be encouraged to use realistic forward-looking estimates consistent with wider economic assumptions, it suggested.

“This level of rigour is the only path toward solving the misleading results problem that has historically plagued the industry," added Velani.

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