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FCA investigates providers over enhanced annuity concerns


The FCA is investigating a number of annuity providers amid concerns they failed to inform customers they may be entitled to a higher rate of income through an enhanced annuity.

The regulator conducted a review of 1200 non-advised sales at seven firms, which between them account for approximately two-thirds of the annuity market.

While it found “no evidence of an industry-wide or systemic failure to provide customers with sufficient information about enhanced annuities” the regulator’s enforcement team is investigating a “small number” of the firms after revealing a number of concerns.

Some providers did not even mention enhanced annuities at all when speaking to customers, and others did not tell customers they could get a higher income by shopping around.

When clear messages about enhanced annuities were given, call handlers under-played the level of increase the consumer could get by shopping around.

The FCA says that particularly when conversations took place over the phone it had concerns some customers who were eligible for enhanced rates only purchased a standard annuity.

Just Retirement group communications director Stephen Lowe says: “The FCA’s interim findings are a stark reminder that further improvements need to be made by some firms to ensure customers have the best possible opportunity to obtain good value guaranteed income for life solutions.

“The industry needs to take on board these lessons and consider how we now help those people purchasing drawdown products to get access to good information and support to shop around.”

The FCA found that between 39 per cent and 48 per cent of standard annuity purchasers may have qualified for an enhanced annuity due to health or lifestyle conditions. The annuity income forgone for the average customer was estimated at £120 to £240 a year.

Because the FCA’s review did not cover a third of the market, the regulator is now asking a small number of firms outside its original sample to review their own non-advised annuity sales.

FCA director of supervision for investment, wholesale and specialist Megan Butler says: “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.”


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There are 13 comments at the moment, we would love to hear your opinion too.

  1. So (on reading this) would best advice be, you have 3 years till you retire, may I suggest you start smoking, and put on weight this may pay divided when you purchase your annuity and it may well be enhanced !

    Apologies for being flippant, it is Friday after all !

    On a serious note, I would say providers are going to be limited in what products they provide, and quite a lot will not offer enhanced annuities or even provide the annuity themselves ! are they really going to spend time going through a flow chart or scripted response, only to come to the end and say go speak to such and such company ?

    Also this highlights the very real risk of “non-advised” selling and a prime indicator why it should be the very rare not the normal.

    One simple solution would be “OK Mr client you want to vest your pension……. you need to talk to an IFA”

    I would even go as far to say no-one should be vesting a pension or taking pension benefits without advice, there are to many variables that need careful consideration, as for non-advice or a convenient tick box or disclaimer to label a client insistent…….. very risky.

  2. Why is this being described as a “thematic” review when everyone knows that what it really is is another hindsight review? Given that enhanced/ill health annuities have been available for donkeys’ years, what was the FSA doing at the time these allegedly poor practices were taking place? The answer, as usual, is about the same as it was doing about the industrial scale mis-selling of PPI, the result being further damage to public confidence in the financial services sector — one of the very things that the regulator has a statutory obligation to uphold and maintain. Another disgraceful regulatory failure for which, as usual, no one will be held to account.

  3. DH says it well enough. If the firms concerned are not going to provide some form of decision tree or automated service, then the answer should surely be – speak to an adviser, but is this even vaguely realistic if the pension pots are very small? – this report suggests that they must be tiny if the lost value of enhanced annuities only generate £10 – £20 a month of extra pre-tax income, so it is little wonder that much effort is being put in.

    Given the array of options and the likely degree of education required for them to be understood, this seems a bit like asking the budget airline passenger whether they had considered travelling by other airlines, other methods, to other places.. one has got to retain a sense of reality about this, which is why I preferred the requirement for a minimum guaranteed income before drawdown could be considered. Just because people can do something, does not mean that they should. We need some considerably better solutions – frankly its bad enough that 7 firms account for 2/3rds of the market.

    • Crikey Dominic, well sported (7 firms 2/3rds of the market)

      This is a sobering statistic, says a lot about a competitive market, or is it, there is just no money in it / margins are to small ?…..

      As a big fan of annuities (given their faults) I don’t necessarily believe its only for small pots…. maybe the FCA need to think why the market is so small

  4. Great article and very interesting. I took 25% of my pension pot in 2008 and basically was mis advised by my provider as regards all the negatives about annuities, primarily not being able to take the remainder of my pot at a later date. Articles such as the above give encouragement.

  5. Pathetic state of affairs. Another prime example of FCA/FSA regulatory failure as this issue has been known of for years. Of course they will deny it was anything to do with them and will not accept responsibility for not being on top of this from ay 1. They send out reams of rules to say give all the information IN WRITING to the customers via wake up packs, making sure to have all the gulf in there that the FCA wanted to ensure recipients could make informed decisions. It was done and they got sent out 6 months and 6 weeks prior to SRA. Now the providers are being clobbered for using scripts to ensure advice is not given and it is information only they are being in receipt of. It is hard to believe this is actually being allowed to go on in this day and age. The FCA need hauled over the coals for the incompetence shown in this space.

  6. Epic TCF fail.

    Yet another example of consumers thinking someone is acting in their best interest whereas they seemingly aren’t – potentially exacerbated by the fact commission can be generated where no advice is given. The ‘sellers’ earn more for doing less and the client has no come back – brilliant!

    I can’t think of a post RDR case I’ve managed where a clients annuity offer from their original provider was ever higher than the advised, WOM, underwritten annuity, NET OF OUR FEES, which we arranged.

    Compared to the ‘sellers’ we typically earn less for doing more! It’s just a shame we don’t have a load of captive clients who we can convince they don’t need advice and it’s best (though were not giving advice, remember!) to take an annuity with us.

  7. Compare the FCA’s finding published today, and then compare against FOS rulings on similar annuity sales going back to 2008. Retrospective regulation at its worst, and the failure of the FSA/FCA/FOS to address the obvious issues in the market is at least as big a scandal as the sales themselves.

  8. I cannot believe it! Life Companies not treating pension members fairly, really. The FCA must have a timeline of when they need more money through fines and have back book of mis-selling activities that they are going to gradually introduce. A bit like Samsung with their products. This is probably the FCA Note 7!

  9. This shows the lack of awareness there was in the enhanced annuity product providers’ expanding underwriting criteria in the last decade. Many consumers will be surprised how easy it is to qualify for an enhancement e.g. having a BMI out of the recommended range and taking on-going medications. I speak to consumers who thought you had to have a life expectancy of a <10 years all the time.

  10. Why did Just Retirement turn my husband down for Enhanced Annuity when he takes 14 pills a day, smoked all his life, has had a heart attack?

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