Prudential and Standard Life may be forced to pay compensation to annuity buyers that were not given sufficient information when they took out their policy.
Following an investigation by the Financial Conduct Authority (FCA), Prudential has agreed to review its back book of annuities to ascertain whether non-advised customers who purchased plans since 1 July 2008 were given enough information about enhanced annuities and their ability to get a higher income elsewhere.
Enhanced annuities pay a higher rate of income to people with health problems or a lifestyle that may result in them having a shorter life expectancy.
Standard Life meanwhile has set aside £175 million for possible redress.
Annuity broker Hargreaves Lansdown says that in 2016, 71% of its customers were eligible for enhanced rates.
Commenting on the announcement, Tom McPhail head of retirement planning at Hargreaves Lansdown says: “This review is in respect of past annuity sales where the insurance companies largely followed the letter of regulatory law but demonstrably failed to keep within the spirit of regulations. Customers who might have been eligible for an enhanced annuity were simply sold a standard terms contract, resulting in a lower level of income.
“The way to avoid this situation arising in the future is for customers to shop around on the open market. Worryingly, FCA data published only yesterday shows that over half of investors retiring today are still buying their retirement income arrangement from their existing pension provider, which begs the question as to whether the problem has actually been fixed.”
Affected customers do not need to take any action. Providers will contact customers directly if they are eligible for compensation.
Mr McPhail adds: “Prudential’s annuity back book is three to four times more substantial than Standard Life’s, so the potential compensation costs involved for them could be significant, though it is important to note they have not yet put a price on it.”
Mis-sold annuity prudential redress
Where you able to complete the form the Pru sent & have you been sent any compensation as yet. i have just completed mine & now await their reply!