Annuity holders may be due redress for historic mis-selling
A number of annuity holders may be due redress if they were mis-sold a standard annuity when they could have got a higher income from an enhanced deal.
As part of a review of non-advised sales, regulator the Financial Conduct Authority (FCA) has discovered that at a small number of firms, communication failures led to customers purchasing standard annuities when they could have got a higher income from an enhanced deal.
Enhanced annuities pay a higher level of income to people that have lifestyles or health conditions that mean they are likely to have a reduced life expectancy.
The FCA says these failures were most likely to have happened when discussions took place over the phone. In particular, it expressed concern that call-handlers were too reliant on scripts and did not always highlight the benefits of shopping around. In cases where firms did not sell enhanced annuities they did not always make callers aware that better deals might be available elsewhere. Where enhanced annuities were discussed, the level of increase that might be available was sometimes underplayed.
As a result of the findings, a small number of firms have been asked to review all non-advised sales since July 2008 and provide redress to any customers that may have been mis-sold to. Customers will be contacted by their providers if they are affected and eligible for redress.
The firms in question are also being investigated by the FCA’s enforcement division, which will decide whether further action needs to be taken.
‘No evidence of systemic failures’
Despite these failings the FCA stresses that these issues were only taking place at a small number of firms and that it found no evidence of “industry-wide or systemic failure” to provide customers with the correct information when they purchase an annuity.
Commenting on the report, Megan Butler, director of supervision – investment, wholesale and specialist at the FCA says: “Annuities play an important role in providing an income for retirement. It is important that consumers get the right information at the right time in order to make the right decision for their retirement.
“While we have found particularly poor behaviour at a small number of firms, there is no evidence that firms have systemically failed to provide customers with the information required by our rules. Firms, particularly those outside our sample, should look at the report we have published today and consider whether they can make improvements.”
Annuity buyers should ‘shop around’
Tom McPhail, head of retirement policy at Hargreaves Lansdown, says that while the sector has been given a “reasonably clean bill of health”, annuity buyers can help themselves by doing their own research.
He says: “If you are buying an annuity, and tens of thousands of pension investors still do every year, you absolutely must shop around. In a small number of cases your existing pension provider may actually be able to offer you the best deal on the market but the chances are that it won’t. Shopping around means getting a better deal every year for the rest of your life; you only have to do it once so it is worth taking the time to do it well.”
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.