Thousands of enhanced annuity sale customers could be due redress
A review of the non-advised sale of annuities by the financial watchdog has found that around 90,000 customers with an enhanced annuity could be eligible for compensation.
The Financial Conduct Authority (FCA) today published the findings of its thematic review of the 1,200 non-advised annuity sales practices at seven firms (representing two-thirds of the market) between May 2008 and April 2015.
As part of its review, it looked at the information provided in respect of enhanced annuities, sometimes called impaired life annuities, which pay a larger retirement income for life than a standard policy.
This is because it takes into consideration a shorter life expectancy based on your health and lifestyle, so smokers and those with heart conditions may qualify for the higher or enhanced rate.
The FCA wanted to check whether firms made customers aware of their potential eligibility for the enhanced annuity and whether they encouraged them to shop around to get a higher guaranteed income for life from another provider.
While it found no evidence of an “industry-wide” or “systemic failure” to provide customers with sufficient information about enhanced annuities through non-advised sales, concerns were raised at a small number of firms where “significant communications took place orally – normally over the phone – which was likely to have caused some customers to purchase a standard annuity when they may have been eligible for an enhanced product”.
The FCA confirmed to YourMoney.com that an estimated 90,000 customers may be affected, and it has now asked a “small number of firms” (no number given) to review all non-advised sales from July 2008, and where appropriate, provide redress. It told us affected customers could be due between £120 and £240 per year in redress.
These firms are also being investigated by the FCA’s enforcement division to determine whether further action is necessary.
The financial watchdog also listed these concerns:
- Call handlers sometimes being heavily reliant on call scripts so weren’t able to respond to clients’ needs.
- Call handlers under-playing the level of increase which a customer may obtain by shopping around.
- Where firms do not sell enhanced annuities, they didn’t always inform customers of this.
Megan Butler, director of supervision – investment, wholesale and specialist at the FCA said: “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.”
See YourMoney.com’s A guide to getting a better annuity rate.