Bayliss attacked the arrangements last month, claiming they offer poor value for customers and damage industry progress on the open market option.
Fuller says the deals are not consistent with treating customers fairly, primarily because the sales process does not flag up enhanced annuities.
He says: “I do not see how anybody can say they are being compliant with TCF principles if they do not ask customers what their medical situation is and offer corresponding terms.
“They should also make it crystal clear that customers could be better off by shopping around. I am extremely critical of single-tie arrangements because they are not conducive to shopping around.
“We are not talking about a 1-2 per cent rate difference here, we are talking about very substantial benefit for the people who would qualify for enhanced terms, and four in 10 people fit into that category. With these deals, enhanced lives are subsidising rates for healthy lives, which is not fair.”
Prudential is the biggest player in the single-tie market. Deals with product providers, including Royal London, Zurich and Pearl, accounted for over 20 per cent of the firm’s annuity sales last year. Legal & General provides single-tied annuities for Skandia.
A Royal London spokesman says: “The purpose of the open market option is to give policyholders the opportunity to shop around.
“This is made clear in the material we send out. The FSA has emphasised that good, clear communication to policyholders is essential and I would be surprised if any company is not meeting that requirement.”
Simpson Financial Services managing director Rob Simpson says: “If things change, the big life offices will lose out on guaranteed, bread and butter income, so I do not think it will happen without legislation.”