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Pru under fire for annuity sale to cancer sufferer

Prudential and Royal London have come under fire for failing to highlight the option of an enhanced annuity to a customer who had informed them he was suffering from cancer.

Wayne Davies had a £27,000 pension with Royal London and was last year referred to the Pru for an annuity purchase as part of a tie-up between the two providers.

Royal London says information sent to the client before retirement highlighted the existence of enhanced annuities.  

Although suffering from heart disease, polio and being a smoker, Davies was sold a standard annuity product. 

During the cooling-off period following the purchase, Davies was diagnosed with cancer and notified Royal London. The email note was passed to the Pru but neither notified the client he could exit the annuity and could be eligible for an enhanced annuity.

Davies wrote to his MP Mark Menzies, who forwarded the complaint on to the Financial Ombudsman.

Davies eventually resorted to writing to pensions commentator Ros Altmann, who pursued the issue with the Pru. 

The Pru has offered a settlement payment and says it has reviewed sales procedures, according to the FT. It was not available to comment further. 

Altmann says: “The free at retirement ‘guidance guarantee’, which could help people understand their pension options, will not be in place until next April.  

“In the meantime people with serious health problems will continue to lock into unsuitable annuities that mean they lose much of their pension fund.  I am, therefore, calling on all pension providers and the FCA to address the shortcomings of this process immediately.”

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Comments

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

  1. This doesn’t exactly apply to the position of Mr Davies, but as an adviser it never fails to amaze me, despite all the literature received by the public pre-retirement how many just buy the annuity from their pension provider without shopping around…

    Apathy definitely rules in the financial arena, how many individuals sit with literally thousands on deposit earning diddly squat?

    It would also appear that Davies did not approach an adviser before looking at his options… Not sticking up for the Pru or Royal London here, but are they not regulated to provide advice and would they not have had to refer Davies to an adviser?

    It seems we might not have the benefit of all information within this article…

  2. “…Davies was sold an annuity despite the fact the Pru does not market enhanced products.”

    The Pru most certainly do appear to market enhanced products! Makes you wonder what else is not strictly accurate in this article…

  3. Once again we return to the age old question of just who’s responsibility is it?

    Pre-retirement literature from the provider pointed out other options, pointed out that the client may be better off shopping around etc etc but still the guy couldn’t be bothered and just took the path of least resistance.

    Can anyone show me another industry where at every point the client makes a decision we must say “are you sure about this”, and as soon as we don’t it was our fault?

  4. When people are first told that they have cancer they suddenly have a great deal of things to bother about that they didn’t have to bother about before. In the midst of these other things, Davies’ way of bothering about the annuity was to tell the provider the new information that he had cancer. He did this for a reason and the appropriate response from the provider would have been, at the minimum, to draw his attention to the fact that he was still in the cooling off period.

  5. Having now read the FT article, I am inclined to agree with Paul 2 above.
    The consumer contacted the provider with extra info during the cooling off period. Insurance companies cannot have it both ways as they require notification of a material health change BEFORE a life policy goes on risk and this is simply the reverse.

  6. I understand all sides of the argument, but can I just clear up here, are we therefore saying that the Prudential were responsible and regulated to provide advice?

    The Process:
    *Davies received details of annuity available 4 months prior to NRA together with option to seek alternatives from the Open Market.
    *Davies (assumed) does not take OMO route to find out who is best annuity provider.
    *Davies completed paperwork for his annuity
    *Davies is diagnosed with Cancer and advised Royal London during the ‘cooling off period’, who in turn notified the Pru.

    Are we to assume that Davies was aware he could obtain a better annuity, hence notifying Royal London and if he was why not just sign the Cancellation Notice and return it?

    Simple solution here for the future… just create legislation that prevents providers for accepting annuity applications direct from clients…

  7. Furthermore the Royal London receives commission from the Pru, for referrals to the Pru… glad to see this area of business is now under review!

  8. @ VM – No, not saying that they were providing advice.
    The Pru did have a duty of care to provide information sufficient for the consumer to make an informed choice.
    They did that first time round and Mr Davies, chose not to take advice and to proceed after receiving the initial information it would appear.
    During the cooling off period he notified them of additional medical information which was material to the insurance contract and were we talking banking law (the only bit of law I ever studied and that was nearly 30 years ago now), there are circumstances were a duty of care applies whether advice is being provided or not.
    As Paul 2 points out, reminding him of the cooling off period or asking whether he wished to reconsider in the light of his changed health would have been prudent.
    Had he then chosen to proceed still/not cooled off, he should have no leg to stand on and the same I feel would have been the case if it had been 1 month later rather than still in the cooling off period
    The Pru appear to have decided the health and timing (i.e. during cooling off) was material after the event, which I think is wise. Had notification have occurred outside the cooling of period, I do hope their decision would have been different.
    Ironically the FOS is said only to be able to look at complaints outside the timebars (and longstop) in exceptional circumstances and they use an example of ill health. To some extent, this is a prime example of exceptional circumstances for my mind. As such, Prus decision to pay out is hardly going to cause them underwrtiting problems as it is unusual and exceptional and arguing over the sums involved isn’t good business.

  9. Evidence that ‘guidance’ is going to be a disaster or what!

  10. Which highlights why the regulator is guilty of negligence in having persistently FAILED to mandate OM as the default option.

  11. Suhan Srinivasan 5th August 2014 at 5:09 pm

    This seems quite straight forward, as far as the rules are concerned:
    -Davies was told about the OMO but did not select it
    -Royal London are allowed to offer Pru annuities and did
    -Davies selected a Pru Pension
    -I am unsure if Pru provided advice but they can and are only obliged to advise on their own products
    -Davies selected a specific annuity
    NOTHING WENT WRONG UP TILL THIS POINT
    -Davies informed Royal London about his health within the cooling off period BUT did not cancel.
    -Royal London informed Pru and Pru did not tell Davies he could cancel.
    -Royal London did their duty (they cannot advise)
    -Pru failed to treat the customer fairly. They could have provided the cancellation information without providing advice.

    That is how it stands under the current rules. The fact that almost everyone would be better off selecting the open market option and advice is quite important at this stage, does beg the question about why the rules have not been changed?

  12. Ros Altman has commented on Citywire and apparently the FOS didn’t make a decision. I have asked her to confirm when (if at all) the client complained to FOS as if they didn’t, why was an MP and Ms Altman drawn in to this BEFORE the FOS as that is what the FOS are for.

  13. The more I read this, the more I’m convinced that the real issue is one of this chap not seeking advice. A good adviser would have discussed the various options available, including exercising his open market option and also considering impaired life. A good adviser would also have explained that telling the provider post purchase that his health had changed and not giving any further instruction wouldn’t result in an automatic cancellation.

    The vesting pack sent to this chap would almost certainly have mentioned seeking advice if unsure (any that I have seen state this both prominently and in plain language) and have included a MAS brochure. Given that, I don’t think any claim that he wouldn’t have known to seek advice would hold much water. Having said that, I’m glad that he has received an end result which seems to be what he was looking for.

    Should RL/ Pru have contacted this chap when he disclosed that his health had changed to discuss cancellation? I think it would have been ‘belt and braces’ to get in touch and see what his reason for disclosing this fact was, but I’m not convinced that not doing so was a breach of the TCF principles or otherwise ‘wrong’. If he had given them a direct instruction to cancel which they had ignored, then I would be of an altogether different opinion, but that wasn’t the case that I can see.

  14. @Scott Miller – I completely agree.

  15. A good adviser would probably have said “Sorry, I can’t provide advice economically on a fund of £27,000”.

  16. @ Sascha

    I would have said “a good and honest adviser”

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