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Nic Cicutti: Heading towards the next financial scandal


When I first ventured into the world of personal pensions I was a naive 30-something journalist – a condition some readers might feel has not changed greatly, despite my advancing years.

Be that as it may, our profession is meant to consist of cynical swine. Moreover, by the time I started paying into my first non-occupational scheme I had some background in personal finance journalism.

Even then, I still fell for the prevailing provider propaganda at the time, which suggested those of us who took personal pensions in the early 1990s and paid in roughly 15 per cent of our gross incomes would probably be able to retire at 55.

In the decades that followed, I have learned the hard way that any assumption of stopping work at 55 was a pipe dream. While we won’t be living in penury, I’m likely to be still annoying readers for some time to come.

Yet until a year or so ago, when I started receiving letters from providers telling me what my likely pension would be if I did follow through on that chosen retirement date, I never sought to change that default date.

The result is that I now have personal experience of how providers behave when they contact you near to your selected retirement date and offer the option of converting a pension into an annuity.

The reality is that as far as open-market options are concerned, the present system is a bad joke. Yes, for reasonably sophisticated investors able to read through several pages of information, the possibility of shopping around for an annuity is always referred to in the information sent out by providers.

But in every case I have come across – and I have now received four or five letters from different providers offering me guidance on what to do about my personal pension pot – that option is mentioned almost as an afterthought.

Having seen this documentation, it is easy to see how consumers might miss out on potentially improved annuity terms by shopping around.

I totally agree with Robert Reid’s recent comments, that terms such as “open market option” are confusing and need to be made much simpler.

And if one draws the conclusion implied in the recent FCA review, to the effect that, as Money Marketing reported, “a review of 10 firms’ annuity books found business sold to existing customers is more profitable than business sold through the open market option”, there is a definite potential for an industry-wide investigation into misselling by providers.

Which leaves me wondering why it is that both the FCA and pension providers appear to be moving so slowly on this issue. To announce a 12-month review of the market, as the FCA has done, means it is putting the onus on the personal pensions industry to reform itself in the meantime.

If I were the regulator, at the very least I might also be asking what steps the industry will be taking to compensate those who have lost out as a result of its current practices.

After all, if that were not the case, it is hard to imagine why the regulator would do nothing to stop many thousands of elderly pension savers being significantly disadvantaged while it spends the next 12 months reviewing what has become blindingly obvious over several years.

This is in addition to tens of thousands who have lost out in the past decade due to what the FCA has said is a material incentive for providers to “prevent consumers from shopping around”.

For those of us who have been writing about personal finance issues over the past couple of decades, this has the look of a PPI scandal in the making.

Lest anyone has forgotten, journalists such as myself were writing about the misselling of PPI cover for years before the issue was finally investigated following a super-complaint by Citizens’ Advice in 2005.

Even then, it was a couple more years before consumer websites such as MoneySavingExpert started to promote the use of template letters to claim compensation for mis-sold PPI.

The tidal wave of claims began in 2009 and only now appears to be slowing. As we now know, the likely £20bn final compensation bill for PPI is likely to dwarf even the amount paid out in the pensions misselling scandal.

In the case of annuities, while the actual scale of individual loss may be smaller, the cost of carrying out any review is likely to be much higher.

If I were a pension provider right now, I would be desperate to address this issue before Martin Lewis, the Daily Mail and the Daily Telegraph’s money sections really get their teeth into the annuities scandal and a new tsunami of complaints floods into the FOS.

My guess is the providers won’t: heads in the sand and bums in the air has been the industry’s favourite position for decades. Why change now?

Nic Cicutti can be contacted at 



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There are 17 comments at the moment, we would love to hear your opinion too.

  1. You have never dealt with the FOS have you Nic? They will take one look at non-OMO annuity purchases and just reject them as ‘non-advised’ the client made an informed decision. In much the same way they are with almost every PPI policy on a credit card, despite every person in the entire world knowing exactly how these things are sold and what information is given. It doesn’t matter that, as you rightly say, the first and possibly only mention of the OMO in a retirement pack is after pages of ‘look how great we are’, how is a lay person supposed to know what bit of information is important and what isn’t? The only way the FOS will look at this is ‘the information was there’.

    Is everything going to be the next PPI mis-selling scandal now so that all the FS journalist can boast ‘told you so’?

  2. Surely, Nic, the state of affairs you describe is a direct consequence of lack of action on the part of the regulator? OM should be the default option. Providers should have been banned years if not decades ago from quoting any annuities in their pre-retirement info packs. Even GAR’s should be no more than highlighted as possibly offering better terms than the best rate available in the OM. The emphasis in ALL cases should be towards seeking WoM independent advice. Why has the regulator failed to act? Why, even now, instead of TAKING ACTION, is it fannying about with talk of wasting yet more time and OPM on yet another thematic review? Everybody knows what the conclusions will be and what action is needed to address the problem. For the regulator to pretend otherwise is sheer mendacity. It’s just fiddling whilst Rome burns.

    And why does our eunuch of a pensions minister continue to shy away from facilitating the creation of an alternative retirement income product unshackled from annuity rates?

    These wretched people should have their heads knocked together.

  3. As has been said, if somebody has received a retirement pack that is in line with the current regulations and decides not to exercise their OMO, then I’m not sure what basis they would have for a claim. Nobody has advised them and they have made the decision with all of the information available to them. The fact that it isn’t that clear is down to the regulator and I couldn’t see the insurance companies rolling over for the FCA if they have followed the rules.

    Having worked previously at a number of insurers who were in the “buying up closed books” game, one of the main reasons for doing this was that there would be the opportunity to sell the retirees an uncompetitive annuity that was full of margin. In fact one of the companies policy was for annuity rates being in the bottom third of any comparison tables.

    Reprehensible maybe, but a company can set its rates at what ever it likes, it is up to customers to decide whether they want to buy or not.

    Having said that, I don’t really think that you need a 12 month review into annuity practices, I think it could all be made very simple by having something like this on the first page in big letters 6 months before retirement.

    Your pension is due to mature and you have a number of options when it comes to taking an income.

    The decision that you make is likely to affect you for the rest of your life – you need to take it seriously
    There are lots of options that you need to consider that will impact on your income throughout retirement.
    Please find below the information about your fund that you would need to pass onto a financial adviser or use for your own research purposes.
    If you want us to provide you with a retirement income, please contact us with the details below.
    Please note however, that based on current market rates, our standard annuities are 15% less than the best rates available on the market.


    And if people still then take out a sub standard annuity with their existing provider, then that is their decision.

  4. Would it not have been fairly simple for the regulator to have produced a one page summary sheet – along the lines of the old “pension unlocking” sheet, and require firms to be include it in every pre-retirement pack – which, in BIG BOLD AND UNIFORM STYLE said “shop around or accept you may be short changing yourself….”

    Wouldn’t be expensive…..wouldn’t be difficult……would remove the companies “marketing spin” from the equasion……and then surely no individual could reasonably say at a later date they were mis-informed.

    perhaps I’m missing something somewhere………

  5. Could not agree with you more Nick. However I suspect the usual suspect getting their teeth into something may have been referring to execution only brokers for some time now – which as the FCA have pointed out are not often up to scratch themselves on doing it right.

    However change has to happen (thank God and well overdue) and some of the comments already mentioned are quite right. We need reform and more importantly it needs to be clear. The world we work in does not allow for clear only ‘to provide information’. Between the regulators, DWP, Treasury, commercial interests and HMRC do you really think they will do what is right for joe public – I doubt it. This could be solved tomorrow with a simple ‘get some advice before you retire’ adverts but that would upset too many big commercial interests and that just will not do.

    cynical me? Well I am not holding my breath …..

  6. There is a fundamental difference between pension misselling, PPI misselling and buying a poor value annuity, which Nic and other commentators have either missed, or glossed over so as not to spoil their article.

    In the PPI scandal, bank salesmen / advisers lied to customers about whether they were eligible, concealed the existence of the cover, and even forged their signatures. This was fraud.

    In the pensions misselling scandal, salesmen / advisers told customers that they could achieve unrealistic investment returns, or exaggerated the risks of their present scheme collapsing. This was also fraud, or at best, negligence amounting to a civil tort.

    Overcharging is – repeat after me – not a crime and not negligence. A business is perfectly within its rights to offer worse value than its competitors. If there was no element of coercion or misleading, the buyer has no cause for complaint. It is right, given the sums involved, that we and the Government should spend money to educate people that they should shop around. But you can’t force them to.

    I do agree that more people should be directed towards IFAs (to preach to the choir) but there is no relevance in bringing up PPI or pensions misselling.

  7. There are certainly problems with the current system, I have recently had the misfortune to deal with 3 or 4 clients holding Friends Life pension plans, not exactly known for their annuity rates. In every case when requesting a retirement pack they have telephoned my clients direct without telling me they were going to do so.
    On making an official complaint I was told in writing, that Friends Life have now set up a dedicated team to do this, their excuse being that they have recently entered the enhanced annuity market and needed to ask the client medical questions to see if they would qualify for enhancement. They then said if they got a positive result they would tell the IFA.
    They do not seem to get the fact that any IFA would always consider enhanced annuities.
    This is from a company that have no facility for adviser charging from the annuity fund, so even assuming they do have the best rate they have no facility to pay the IFA if that has been the agreed route with the client.
    For the future we now always tell clients with any Friends Life policy, “this despicable company will ring you and want to ask the same medical questions as we have done, you should tell them to go away or just hang up” We are probably a bit more polite to the client, but the sheer arrogance of this outfit is beyond belief.

  8. Shock horror – you have discovered that life offices are less than friendly. Come on Nic, you can’t be that naïve. Perhaps you now know (if you have read any of my bleats about life offices) why I hold then in such low esteem.
    But please realise that this is but one of a list of financial scandals waiting in the wings. Here is my list:

    Equity Release
    Draw Down
    Auto Enrolment

    Yep, there is still plenty for then to do at Canary Wharf – more reviews look a probability.

  9. Sascha Klauß

    I have to disagree. I have heard examples from clients directly of the telephone based brokers say ‘ why deal with your IFA and pay fees when we are free’ or the clients that think they are getting advice but sign that disclaimer saying they are not. My advice would be to you mystery call one of these brokers and listen carefully to what they say. I did and it shocked me the lack of ethics and honesty. As one client recently put it after speaking to 4 differing online and telephone based brokers; ‘no wonder pensions have a bad name with so many people not telling the truth’. A quote I will remember for a long time seeing he qualified for flexible Drawdown and nobody bothered to mention it even through they knew his circumstances and pension over £30k pa. I had to send him the pension regulator PDF on the subject to prove I was telling the truth. It strikes me that the dodgy saleman types have been forces to change there clothes once again, leave the PPI etc behind and it appears we know where they have gone. The problem is joe public does not differentiate between the dodgy saleman online or on a telephone and me as a local professional IFA and I find that offensive.

  10. @ Keith Smith | 27 February 2014 11:47 am
    Your comment includes ~ ”so even assuming they do have the best rate they have no facility to pay the IFA if that has been the agreed route with the client.
    For the future we now always tell clients with any Friends Life policy, “this despicable company will ring you and want to ask the same medical questions as we have done, you should tell them to go away or just hang up” ~

    Correct me if I am wrong but this reads to me that if the client has the opportunity to obtain the best rates on the market you will advise them to steer well clear because the adviser wont get his cut? I am not sure our friends within TCF would concur with your advice to the client.

    I apologies if I have misinterpreted your comment but surely your advice always has to be what is best for your client, if they have the opportunity to get the best from their investment it is your responsibility to either find a better alternative or to wish the client luck and look at what else you can do for them?

    That said, there is always an argument against the underhand way that life companies feed off the good professional work of the IFA’s.

  11. goodness gracious 27th February 2014 at 1:48 pm

    @ Sascha
    You have a limited understanding of what happenned during the PPI miselling ‘scandal’ time as well as the pension misselling one.
    Very few clients were lied to regarding the potential benefits of PPI and few signatures were forged. Yes it happenned rarely when staff were pressurised to sell but not often. The fault was the non completion of the relevant client information and recommendation sheets in line with the FSAs requirements (which were not entirely clear at the time but were thrashed out in court cases post event). The resultant wholesale refund of payments including notational interest to all who purchased the products, even if they had a successfull claim, is a scandal in itself. A bigger scandal is the millions syphoned off by CMCs lying about their services.
    The pension misselling issue focused on two areas: 1 Advice to divert SERPS into a personal pension and 2 Advice to leave/transfer from a DB scheme into a PPP.
    The first ‘misselling’ victims, if born after 1953, will have a fixed rate state pension in lieu of SERPS. In addition they will have their PPP ex SERPS pension. A win win situation. So those who were paid compensation do not have to pay it back. Firms that automatically excluded over 45s and re-enroled their clients into SERPS/S2P may have caused another scandal.
    Those who sold pensions via leave/transfer from DB schemes, championed on a false non advisory basis by the late Mick Newmarch of Prudential, were never working on behalf of their clients. There is the only scandal.
    It is not the excessive profit taking of the providers annuity that is criminal, it is the belief of most pension providers and on-line annuity brokers, that they do not owe their customers a duty of care to ensure pertinant and complete information is provided. Sticking in a copy of a MAS brochure does not fulfil this duty of care.
    Introduction to an IFA on a face to face basis should be manditory for all those with pension pots over 30k. under 18k should take the lump sum in most cases, therefore 18-30k can be the realm of the on-line brokers where they can do least damage.

  12. @PJ-Botham
    Should have made this clearer, we will always have the Friends Life basic quote as that will come with their retirement pack, with some older policies this may include a GAR, if that is the best rate it would be recommended with our fee payment options fully explained. Should it seem the client will qualify for an enhanced annuity then it will be put to the market. However much I may dislike it FL will be included, so if they do come up with the best rate and the client agrees to pay by invoice from us we deal with FL, if the client does not want to pay the full fee then they can deal direct with FL and just pay our research fee which they will know about before we proceed.
    Why the client is told we would prefer them not to respond to a telephone call from FL it is after all up to them, we can only make it clear that we have already taken the reason for the FL call into account, the client should know this anyway as will have gone through the medical questions.
    What I find despicable is the fact that this company feel the need to go behind the IFA’s back and assume we are incompetent enough not to have looked at enhanced annuities.
    (Other pension contracts are available – if suitable)

  13. Nic:it is all well banging the drum about the open market option. What any decent adviser will tell you if you approach them for an open market quote is that there are other options to consider in the “at retirement market” I was told at a recent industry presentation that 9 out of 10 advisers would not purchase an annuity with there pot. Skip the OMO debate and open it up to all the retirement options now available. OMO is like deckchairs on the titanic. They are all going to sink with the passage of time and the big life companies have a vested interest in keeping the status quo.

  14. Mr Gracious – all i can say is who has a lack of understanding of the PPI mis-selling scandal? Very few clients were lied to? Very few staff were pressured to sell? have you spoken to any staff that used to work for a bank? have you spoken to any self employed customers who were sold PPI? Have you spoken to any customers who bought single premium PPI policies on a mortgage? I think they will disagree with your point that very few people were lied to or that sales staff weren’t pressured to sell.

    And this argument that so many people made claims on PPI on then reclaimed the premiums is about as accurate as your previous arguments – look at the stats for the payout rates on PPI – about 20%? Look at the uphold rate of complaints against PPI mis-selling – about 80%? Do they match?

    What still surprises is me that there are still dinosaurs out there that will even begin to think, let alone support, transferring members out of a DB scheme into a PP FOR ANY REASON is or was acceptable. And the likes of you keep on blaming CMC’s for causing the issue! All i can say it you keep on selling crap like PPI and keep telling people to do stupid things and CMC’s will keep on coming after you.

    And where does your hypocrisy end? It’s ok for the poor people with small funds to go to the internet, because i dont want to deal with fiddly small change and dont want to treat them fairly, but anyone who does want to deal with them must be as fair as me! And you wonder why people dont trust IFA’s???

  15. goodness gracious 28th February 2014 at 11:00 am

    As it happenns I used to work for a bank during the time PPI was sold. I remember well an executive who felt that sales of PPI via the telephone should be about 50%, then was moved on.
    If you look at things rationally, rather than the unadulterated propoganda you have swallowed wholesale, PPI was a good plan for those who had little reserve money to help them continue to pay a loan if they were ill or made redundant through no fault of their own. The Self employed had a different problem as the plans needed evidence of non work and completion of final accounts to make a claim. In addition those who had the plan that continues past the upper age limit and the PPI company still took premiums, often were not told the full details.
    The stats on PPI payout you quote are also misleading. Payouts are high because the correct paperwork was not completed and most PPI providers have accepted that it is better to pay than suffer the reputational damage.
    So, if you said plans sold to the self employed and elderly were missold as the conditions for payment in the event of a valid claim, were not properly explained, this barely exceeds 15% of all plans sold. All others, sold to employees to protect loan payments (if they needed a loan they were unlikely to have sufficient back up capital) could make a valid claim, so were these mis-sold? I stand by my point.
    The CMC industry, that you represent, have shown themselves to adopt far worse sales practices than the PPI sellers. Phoning those who are on the TPS register, often during unacceptable hours. Not stating upfront that the services offerred could be done for free by the client. talk about aggressive sales practices, breaking most rules and regulations as laid down by the MOJ. Will there be compensation paid to those who were not properly told of the free direct service from the FOS? No, the firms go into recievership at the drop of a hat. How many CMC firms were banned by the MOJ last year? Over 300, now thats a disgrace.
    Funnily enough, my post deplored the transfer from DB to DC, I have prevented over 20 during my time in this industry, it cannot be condoned except under exceptional circumstanses. I have rarely sold PPI, as there are better regulated products out there, and none of my sales heve led to compensation, but I am regulated and comprehensive reports were done.
    Your last comment on the use of on-line for pots over the trivial limits but below a certain size is purely to benefit the retiree. The cost of my services would negate any benefit I could offer over the on-line providers, providing they offer ill health annuities. Therefore rather than being hypocritic, I am always thinking of my clients welfare, rather than my back pocket, unlike CMCs.
    Pip pip!

  16. SImple solution – Ban firms from offering annuities to thier pension clients. The only option is then to shop around or get advice.

  17. @goodness gracious

    Whilst the bank that you worked for at the time may not have had severe sales pressures, this was not the case with many lenders. I recall a brief period working for a secured lender who would not tolerate an insurance uptake of less than 85% on single premium policies. If a customer didn’t want the policy the manager’s guidance was that the loan adviser would go out to the car park (as the calls on the office phones were recorded) to tell the customer the loan had been declined but underwriting might look again if insurance was added. (And before anyone asks – yes I did leave this organisation rather quickly and report my concerns to the then regulator)

    By the same token if you have ever listened to “card activation calls”, these are often misleading high pressure sales pitches to customers who a week earlier filled in an application to say they didn’t want it. Whlst I agree with you that there are cases where a PPI policy was suitable to protect borrowing, these did not include single premium policies with rule of 78 refunds were wholly unsuitable for customers with a history of rolled over borrowing.

    I agree that the practices of many CMC firms are wholly inappropriate and you will see from my previous posts that I am highly critical of this. However this does not mean that every firm operates by the same low standard just as I would never judge all advisers by the standard of the worst.

    Turning to the actual article, one of the more sensible ways around this must surely be better financial education and also a massive simplification of the pensions system. I was recently sorting through some old paperwork and came across a G60 pensions text from a decade ago. Even in 10 years the number of changes made, often in the name of “simplification” is incredible. Given these changes and the complexity of the subject it is little wonder than most of the public “switch off” when pensions are mentioned.

    A good first step would be making the Open Market Option the default one, but in the longer term root and branch reform of the retirement options available is the only long term solution

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