Reports this week said that customers who decided not to take an annuity with Prudential, which has an agreement with Royal London to provide annuities, were still charged 3 per cent commission when they exercised their OMO.
FSA spokesman Robin Gordon-Walker says: “The position is that we are aware of this and are looking into it.”
Standard Life head of pensions policy John Lawson says Royal London is not treating its customers fairly.
He says: “This is all pretty murky. There are so many vested interests in this which is why there was such an anti-reaction when I called for providers to publish their annuity rates.
“Royal London’s response surprised me. They said because they are making nothing out of it, they charge 3 per cent when customers take the OMO option. This is not treating customers fairly.”
Hargreaves Lansdown head of pensions research Tom McPhail says: “Advisers should challenge Royal London over this. They should look at the policy terms and conditions. Then they should bring it up with the FSA. It is not TCF.
“I am astonished that Royal London chose to justify these charges by saying they were not making any money from people exercising their open market option.”
An adviser who wished to remain anonymous says: “I have already flagged this up with the FSA. It cannot be right under TCF principles.”
Royal London head of communications Alasdair Buchanan says: “The charges are 3 per cent whether a customer chooses to go with Prudential or take the open market route. These are historic products and this would not happen on modern products.
“Traditionally, Royal London has had relatively low charges through the life of the policy. There is a charge at the end if the money is being transferred elsewhere. I can see why people would ask why should you charge with modern products but these are historic products. From our perspective this should be perfectly acceptable.”