Sipp quotes really are one thing in the pensions world that I don’t understand.

It isn’t how they work that is the issue for me but why we have to do them at all and what they really show the client at the end of the day that confuses me.

I’m sure the FCA want to make sure they are clear, fair and not misleading, but the changes brought in over the years make this increasingly difficult.

Growth rates are just a best guess as to what the chosen asset classes may grow at, but we know that past performance isn’t an indicator of future performance, so why does the estimated growth rate depend on what they may or may not invest in?

That said, even if they were a great indicator, clients shouldn’t be taking out a Sipp if they are intending on popping all their money in one set of assets and not moving it for 10, 20 or even 30 years. So today you may be illustrating on a cautious managed fund and tomorrow they cash it all in for some AIM shares, it is all guess work.

To me all an illustration is really for is to show the effect of charges and compare them with another provider’s set of charges; the underlying investments could well be the same with the same charges but the provider thinks they will grow at different rates and they are well within their rights to do this, so a comparison is basically impossible.

The latest consultation has also shown discrepancies in the way in which providers are calculating the mid growth rate, where there is a split of asset types, either applying the maximum to each type and then averaging or averaging and then applying the maximum.

This can mean the end mid growth rate is significantly different. The FCA are addressing this issue but it is another point that just shows how illustrations can be manipulated.

The consultation response also looked at the issue of retained interest on cash. Advisers may be concerned about this but in the scope of illustrations it is again a painful and pointless addition to something that tells the client very little.

We will have to show any retained interest as a charge, although the client won’t actually be paying the amount, they just don’t receive it in the first place.

We have to build this into all our illustrations, even when the client holds £1,000 in cash in the default account and £499,000 in other assets. If they are holding £500,000 in cash then fair enough but really should they have a Sipp in that case?

I would really like to go back to the days where there were no choices to be made on illustrations, use growth rates of 5, 7 and 9 or another method, as long as we are all doing the same, show all explicit charges the client will be subject to so they can really see who is cheapest.

We all know that cheapest isn’t necessarily better but what else do these pages and pages of complex calculations really show?