BLOG: Spotlight on annuity mis-selling
Before the pension reforms were announced, many retirees purchased an annuity – a product that allowed people to convert their pension pot into a guaranteed income. However, it has become clear that some have been left at risk of annuity mis-selling.
The mis-selling of annuities covers a variety of practices. Firstly, there are significant numbers of pensioners with poor health who may have been entitled to “enhanced” annuity products which, by definition, pay a higher income because they are, statistically, not likely to live as long as their healthier counterparts. There have been reported instances, for example, where annuity providers have failed to offer the best terms and products available to clients who have a reduced life expectancy because of a pre-existing health condition.
Secondly, an existing pension provider has an obligation to advise their clients of annuity products other than those offered by them, which are available on the open market and could provide a higher income. A report by the Financial Conduct Authority in the early part of 2014 found that one in six people could increase their retirement income by more than 10 per cent if they changed provider and for people with severe health conditions the figure is potentially much higher. As a result, many will have suffered some form of financial loss.
There are early indications that insurers and brokers have, for a number of years, taken full advantage of their clients by charging them excessive rates of commission and keeping them in the dark about what annuity products were available. Additionally, those with the smallest pension pots may feel the full force of potential mis-selling; having only a handful of annuity providers to choose from which, in reality, means that they are often presented with the worst deals.
My experience has shown that it pays to look into past financial investments, especially if a person feels they have suffered monetarily because of the advice they received. There is support at hand if this is the case. I suggest that people who feel they may be left out of pocket consider the following five steps to see if they may have grounds to claim against their annuity provider and/or financial adviser:
- Make sure you carefully read through all of your initial documentation and paperwork to determine what category of annuity product you purchased; and what advice, if any, was provided to you at the time.
- Think about the time when you purchased your annuity product – did your insurer / adviser ask any specific questions about your health and lifestyle; such as whether you had any pre-existing medical conditions or if you were a smoker?
- If you did have pre-existing medical conditions, but they were never considered – you may have been entitled to an enhanced product and, therefore, an increased income. If this is the case, speak to your annuity provider and explain why you think you are a victim of possible mis-selling; and follow through with their own internal complaints procedure.
- If the response from the annuity provider or financial advisor is not satisfactory, contact the Financial Ombudsman Service which deals with finance related consumer complaints – http://www.financial-ombudsman.org.uk
- This may also be the time to approach a solicitor. There are specialist solicitors that have expert legal teams who deal with financial mis-selling on a regular basis. Such firms should be capable of offering a free 30 minute consultation to discuss your potential case.