The summary cost indicator (SCI) must be fair, clear, and not misleading for the PEPP saver. It must show accurate figures, not estimations (as in the PRIIPs KID) on the difference between the gross and net return of the product at the target retirement date, in percentage terms. The SCI can be presented either as:
– the Charges Ratio (CR), preferably for lump sum drawdowns;
– the Wealth Reduction Rate (WRR), for periodic installments.
The Charges Ratio (CR) would show the difference between the gross and net returns at the end of the investment horizon, providing an accurate image of how much fees have eaten into profits, regardless of the recommended holding periods.
The CR should be expressed in percentage terms only since investors do not have an accurate scale of size for investment and compound returns, especially on long-term products. Moreover, difference will turn out incomparable if the PEPPs have different expected returns at the target retirement date.Since many savers wish to use their pension products to obtain a monthly income during retirement, the Wealth Reduction Ratio (WRR) shows how much of the monthly income generated by the PEPP has been reduced by fees. The WRR will be calculated as the difference in the gross and net monthly payment during the assumed life expectancy period of the PEPP saver after retirement and expressed in monetary terms.