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FCA enhanced annuity review points to value of advice


Advisers have criticised providers’ enhanced annuity sales practices after an FCA review found some firms failed to tell customers they could be entitled to better than standard rates.

After reviewing 1,200 sales at seven firms the regulator says 90,000 consumers might be entitled to compensation. It plans to conduct a follow-up investigation at a “small number” of the providers.

Standard Life has since revealed it is one of the providers the FCA has ordered to review its backbook.

All the sales were non-advised. Advisers have responded that though the individual losses may be small – on average between £120 and £240 a year from pension pots averaging £25,000 across the sample – advisers still have a duty to make sure their clients get the best annuity rate possible.

Landmark IFA managing director Kevin Mullins says: “We have a robust process to make sure we ask questions about health and habits early on because if you start with those questions you know pretty darn quickly if you are looking at an ordinary annuity or otherwise. You can almost stop the process there and move on to enhanced annuity rates.

“We wouldn’t feel comfortable not covering any possibility of a client taking an enhanced annuity. Even if it’s going to be a standard annuity, [it’s] best to ask the question and waste an hour finding out than get bitten down the line.

“It would be agnostic of value because frankly our job is the best interest of the client and to get them the best deal available. Getting a guy with a smaller pot an extra £20 or £30 a month, that’s huge in comparison to the starting value.”

Kent Carlyle Wealth Management adviser Michael Saunders agrees enhanced annuities can play an important role in the planning process.

He says: “It’s a central thing to ask and it’s clearly a huge question. We are obliged to dig up any kind of fact which might build a bit more income for those requiring an annuity.”

Zurich UK Life head of regulatory developments Matt Connell suggests the reason the FCA found “no evidence of an industrywide or systemic failure to provide customers with sufficient information about enhanced annuities” is because providers each have different sales processes.

He says: “Some providers will direct customers to an annuity broker as much as possible whereas
others will be marketing their own annuities more.

“The level of direction and guidance will be different depending on how much of an advice offering they have.”

However, Connell remains cautious about making advice on complex impaired life annuities mandatory.

He says: “The more you put in the realm of compulsory advice the narrower the choice you are leaving for customers who don’t want advice and you might be shutting down potential defaults that might be sensible places for them to go.”



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  1. Again, one feels compelled to ask why the FSA, as so often seems to be the case, FAILED to take action on this YEARS ago. The issue is not complex and nor would it have been difficult to fix.

    1. Vastly simplify the pre-vesting info packs. The present ones are rarely read, still less understood. In fact, they’re virtually a deterrent to engagement with the retirement income planning process. Can the regulator not see this or is it just part of its perennial obsession with forcing providers to impose on policyholders more information than most lay folk can comprehend?

    2. Ban providers from quoting any annuities of their own (though they must, of course, draw attention to any potentially advantageous GAR’s). This would steer customers away from choosing the easiest yet so often the least advantageous option.

    3. Make OM the default choice but with an option for those absolutely determined, for whatever reason, not to take independent advice, to opt out in writing. Those who’ve signed a statement confirming that they’ve been made aware of the potential advantages of taking advice in the OM but who’ve rejected that path would have no comeback against anyone.

    How difficult can it be? Yet the FSA did NOTHING.

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