PENSION savers will see thousands of pounds shaved off their predicted future retirement pots from 2014 under the City regulator's plans to give them a more realistic idea of potential returns.

The Financial Services Authority (FSA) said it would reduce the standard projection rates used to show possible future returns and the impact of charges for someone taking out a product such as a personal pension or a life policy.

It said the move would reduce the possibility of consumers being given a false impression of the size of their potential cash pots.

Firms will have a year to implement the new projection rates, which come into force in April 2014.

Under the current system, firms are required to use projection rates to show what returns an investor might receive, which are not a firm guarantee but give a flavour of what people might gain from their investment.

They are meant to give three different rates of return and revise them down if a product is unlikely to achieve this.

The FSA has been consulting on plans to strengthen the rules after finding providers often fail to comply with the requirement.

Under the current system, a pension statement shows what a pension will be worth if it grows by 5%, 7% and 9%. But the FSA said the projection rates would be cut to 2%, 5% and 8% to make sure customers are not given potentially exaggerated information.

The changes could lead to people reconsidering their plans for retirement. At present, a 22-year-old earning £30,000 a year who contributes just under £2000 annually to their pension is told their projected pension income would be about £10,300 on retirement at 68, based on a mid-point growth rate of 7%.

But under the new mid-point growth rate of 5%, the projected income would be about £6400, according to research from financial services provider Hargreaves Lansdown.