In October 2016 the FCA published the results of its review into the way millions of annuities were sold between May 2008 and April 2015, in particular to customers who were in poor health.
Overall, the regulator said there was “no evidence of an industry-wide or systemic failure” when it came to the way that enhanced annuities – which are targeted at those with serious medical conditions – were marketed.
But the review did find that in some cases, deficiencies in sales processes meant that some individuals who could have received much higher annuity income through an enhanced deal were mis-sold their annuity, and ended up settling for low-paying standard annuities.
What is an annuity?
Find out how the Saga Annuity Service, provided by Legal & General, may be able to help you get more retirement income from your pension.
How enhanced annuities work
Enhanced or life-impaired annuities are aimed at customers who suffer from health problems such as cancer, heart disease or diabetes.
Because such people typically have lower than average life expectancy, annuity providers can afford to offer them higher levels of monthly income as it is likely to be paid for a shorter period.
What problems were identified
The FCA said that in a small number of firms, especially those which sold annuities over the phone, customers may not have been given sufficient information to decide what type was most suitable for them or whether they would have been eligible for an enhanced deal.
The negligent companies identified by the FCA are now being asked to review their sales from this period and will be required to compensate any customers who have lost out on a mis-sold annuity.
Megan Butler, a director 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.
The pros and cons of annuities
“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.”
The FCA said that it was particularly concerned that some providers downplayed the potential benefits of enhanced annuities – especially if they themselves did not sell them, and would risk losing a customer if they thought they would be better off seeking an enhanced deal.
Campaigners said that the review highlighted the importance of shopping around and comparing rates from as many annuity companies as possible in order to get the most suitable deal.
Money expert Paul Lewis on the issue of mis-sold annuities:
Prudential is the second major insurer to set aside nearly £200m to compensate people who were sold the wrong annuity.
An annuity is a pension for life and millions of people have used their pension funds to buy one. But insurers frequently did not take their health into account. If you smoked or had health issues then the annual payment you received should have been more – ‘enhanced’ in the jargon – as you would expect to receive it for a shorter time before you died.
After an investigation last year by the Financial Conduct Authority, all the major providers have to look at their sales back to 2008 and decide if customers were mis-sold annuities.
If so, they must give them more each year for the rest of their life and pay a lump sum for past years.
If you bought an annuity from 2008 – possibly from 2001 – from the same firm you held your pension with, you may get compensation if you had a health issue that was not taken into account.
Contact your annuity provider and, if it refuses to pay, refer your claim to the Financial Ombudsman Service, financial-ombudsman.org.uk, 0800 023 4567.
For more information, visit paullewismoney.blogspot.com and search ‘mis-sold annuity’
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