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Pensions industry must eradicate annuity ‘never’ events


The National Health Service has a long list of horrific “never” events. As the name suggests these are preventable mistakes, such as leaving foreign objects inside patients or amputating the wrong limb, for which there is zero tolerance for error.

In a Channel 4 pensions documentary on Monday night, we heard the case of Frank Adams.

Adams had a £29,000 pension pot and was sold a single-life annuity by Scottish Life in 2005 – despite supplying a marriage certificate and his wife’s birth certificate with his annuity application. Adams died from cancer last year, leaving his wife nothing.

Although Scottish Life agreed to pay Adams’ wife a joint-life annuity backdated to the day of his death, this situation should never have happened.

Given that savers miss out on an estimated £1bn a year by failing to shop around at retirement, it’s hard not to conclude that “never” events are actually quite common in the annuity market.

A married man buying a single-life annuity without knowing it will leave his wife with nothing if he dies before her. A woman with cancer purchasing a standard annuity unaware she could get 50 per cent more income through medical underwriting. These should form part of a list of annuity “never” events.

But what can be done to fix the market?

It would be easy for the Government and regulators to focus their reforms on the “greedy” insurance industry.

However, this approach ignores the bigger problem – the weakness of the demand-side of the market. Strengthen demand and the supply problem disappears.

Annuity brokers could have a role to play here and shadow pensions minister Gregg McClymont has suggested that all pension schemes should offer members an annuity broking service.

However, to do this now would risk repeating the mistake made in failing to implement minimum quality standards before automatic enrolment kicked off.

If we are going to push people towards brokers there should be a set of standards that, at the very least, protect people from basic buying mistakes.

Aviva head of policy, pensions and investments John Lawson says: “We would like the market to work very well in terms of shopping around.

“But it is about a lot more than shopping around and Dispatches highlighted that. There are brokerages out there that do not help you with the joint life vs single life decision, inflation vs non-inflation protected decision or the drawdown vs annuity decision.

“If people are going to be forced out into the market, there has to be a consistent service that will deliver the right help to them. Too many brokers out there just want to cut a deal for their customers but people need a bit of guidance before they start shopping around.”

There must also be a role for face-to-face help and policymakers need to urgently revisit the issue of simplified advice.

The advisory community could play a hugely positive role in marshalling the annuity buying power of the UK population – but only if a stripped down regulatory regime is created which allows them to do business at a lower cost.

Annuity Line head of business development Billy Burrows says: “If we analysed what type of service the average client wants, it is somewhere between no advice and full advice.

“People want something more sophisticated than execution-only but not as complex or expensive as full advice. That is the simplified space which the industry and the regulator needs to start debating.”

Attacking the vested interests of the pensions industry and comparing the annuity market to PPI makes easy headlines but does nothing for savers. And while improving consumer engagement and education is a laudable aim, it will not help the millions of people approaching retirement in the medium-term.

If the pensions industry is going to eradicate “never” events in annuities, the role of the intermediary will need to be strengthened.

Tom Selby is deputy head of news at Money Marketing


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. Clearly, as the case referred to in this article highlights, it is imperative that people who are nearing retirement should be made aware that they do not have to purchase an annuity from the provider that their fund is with. Somehow the providers need to inform the policyholder that other options are available and that they should seek advice before making what is an irrevocable decision, once the annuity is in payment there is no going back.

    However, the cause of the adviser is not helped by the constant negative comments about pensions, annuities and the financial advisers whose only interest in the client is the income their fund will generate, not to ensure they don’t make the same mistake as Frank Adams did..

    It isn’t helped either by providers sending clients directly to annuity providers, rather than advising them to speak to their IFA.

    A case in point. We were contacted recently by a client , partly because we had written to him; we write to all clients approaching retirement when we receive the pre-retirement correspondence from the provider and partly because Aviva recommended that he contact us. Well done Aviva.

    Our records indicated that this client also has pension funds with NPI, who we had not received any pre-retirement correspondence from. I rang NPI and was told all the information had been sent to the client, information is not automatically sent to us despite the fact he is our, not their client. As it happens, we don’t appear to receive anything from NPI relating to our clients, ever.

    When the client came to see me, he advised he had contacted NPI, that they had put him through to an annuity provider and that he had submitted an annuity application directly to them, having been given no advice. This particular client not only has funds with NPI and Aviva, he has funds with other providers as well. I explained to the client, and he understood, that it would, more than likely, beneficial for him to combine these various funds to purchase an annuity from one provider, rather than set up a series of smaller annuities from a number of providers. I also pointed out that other options are available and may be more applicable to him. The application he submitted has been cancelled and we are now in the process of collating the figures from the various providers to obtain figures to discuss with the client.

    My question to NPI is why did you refer this client to an annuity provider, rather than to us as the financial adviser that arranged the plans? How does this help this particular client who will almost certainly benefit from receiving advice about the different options available to him.

    This case highlights just how important receiving advice as you approach retirement is. It also highlights how much there is to be done before people’s first instinct is to seek advice and not just buy what is being offered.

    Has any one else had a similar experience with NPI?

  2. What is just as scandalous are the levels of ‘administration fees’ that people like NPI receive from these 3rd party annuity providers, which are often higher than advice fees charged by independent financial advisers.

  3. A Code of Conduct for at retirement advisers and brokers is being drafted to be circulated for consultation in December.

    The Code will set a bar for the minimum quality level of service for a broker or adviser to offer the customer so as to reduce the possibility of these never events.

    The main areas the Code will cover are

    1. Being whole of market
    2. Doing full underwriting of medical conditions for enhanced annuities
    3. Checking the ceding scheme for small print clauses – do you know 18% of IFA cases result in client being advised not to use OMO?
    4. Sense check of consumer’s EO choice with choices like married men buying single life being validated with client before implementation
    5. Clarity on fees/commission: one ain’t free & the other a lot of money!
    6. clarity on level of service provided and consumer protection on non-advised
    7. Some basic competency in pensions not just a sales person

    We do need to have some positive news in the press. I’ve spoken with journalists from the main daily newspapers to highlight the benefits for consumers of choosing a firm who adopts this code rather than one who doesn’t. Let’s see if they run with it.

    Hopefully, good brokers and advisers will have the carrot of being seen to be good. It would be nice if the IFA trade press could give this some coverage too in more depth once the consultation document is launched later this year.

  4. Unfortunately the only thing that will stop these despicable actions by insurers is a review of all annuities purchased in the last 10 plus years. There are going to be thousands of women like Adams widow who have lost their husbands life saving because of greed and mis-selling by life offices who only ever listen to one thing sanction and enforcement. It’s an embarrassment and shameful that large life offices are STILL ruled by greed with a total absence of empathy for the misery and suffering they cause.

  5. Excellent idea what happens when the code is breached by am adopter? No teeth = no point

  6. I’m confused as to why the implication is that Scottish Life hare been greedy and mis-sold an annuity when the client dealt direct and I can only assume Scottish Life didn’t provide advice.

    Whilst I felt that the Dispatches program was surprisingly balanced (given the topic) I also felt that the throwaway comment that the fact there was no spouse pension ‘was only in the small print’ is perhaps a tad unfair – if you read them, most annuity quotes make it clear what happens of death.

    Yes the situation (single life annuities when a joint life is perhaps required) is a problem but it would appear the issue stems from the annuitant not being clear on what they were getting whilst dealing direct with a firm which is providing a product based on the clients choices.

    The only other issue I had with the program was the fact that the concept of seeking advice (and the distinction between advice and non-advised sales) was not mentioned at all…. something which would have perhaps solved the issue at outset.

  7. Robert

    I agree and the extra aspect is that a random sample of accredited adviser/broker’s case will be checked by an external compliance checking firm to monitor compliance. Accreditation will be withdrawn if checks not done or they fail the checks.

  8. @Paul – I agree. To state that Scottish Life must have miss-sold the annuity is a bit strong in my opinion. They simply followed what they were being told by the client. The real issue is whether or not the client is in a position to make the decision themselves i.e. do they fully understand what a single life annuity is compared with a joint life. During an execution only process the balance of responsibility must switch from the provider to the client at some point, if a provider makes all information about a product clear and transparent it is not then up to the provider to make sure the client understands it. Clearly this is different during an advised process.

    Once again someone is calling for the creation of a “simplified” advice process. We don’t need one! The regulator just needs to make it simpler to give the advice levels we currently do. Can someone explain to me how a “simplified” advice process will work? How will my dealings with the client change and more importantly what will my lower level of responsibility look like?

    Just my humble opinion as usual.

  9. How is selling a single-life annuity instead of a joint-life annuity anything to do with greed on the part of the insurer? Single-life annuities and joint-life annuities pay exactly the same commission. Or fee, whichever – the point is that it is a % of the fund value. The only place greed would come into it is on the part of the buyer: if they take the higher annuity, either because they assume the husband will live forever or the husband just wants the extra money and keeps his wife in the dark.

    This obviously wasn’t the case here because of the detail of the marriage certificate. But I have seen hard-luck stories in the Money section of the Mail where this is quite clearly exactly what happened.

    You can argue that the insurer should refuse to sell the client an annuity and direct them to an adviser. But no-one is obligated to turn away business, and overcharging is not a crime. You would essentially have to ban the provision of post-retirement contracts without advice, and that would be quite a dramatic intervention in the market. How would the commenters here like to be told that they are not allowed to buy an annuity / drawdown plan by themselves and must pay one of their fellow advisers for advice?

  10. To suggest that Scottish Life, or any other Life Office, has done wrong by setting up an annuity in accordance with the individual’s wishes is wrong.

    Remember just because someone is married doesn’t mean that they should take out a single life policy – as the annuity provider doesn’t give advice it is not their place to make decisions on whether a spouse benefit is required or not.

    Can you imagine the reaction if they had refused to do it – nanny state and all that!

    This surely shows the need for people to be made to take advice, in whatever form, so that they are aware of all of the issues.

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