Six providers have been referred to FCA enforcement after the regulator uncovered widespread failures as part of its closed book review.
Abbey Life, Countrywide, Old Mutual, Police Mutual, Prudential and Scottish Widows will be investigated to uncover the extent of disclosure of exit fees and paid-up charges, including after December 2008.
Abbey Life and Old Mutual will also be investigated in respect of other possible regulatory infringements revealed by the thematic review.
The FCA’s thematic review found boards and senior management “do not have a grasp of closed-book customers and outcomes” and that firms do not generally review closed-book products.
In addition the regulator says most firms are excluding important information, including additional charges for paid-up members or the loss of valuable guarantees.
The review covered products sold pre-2000 by 11 firms who hold £153bn of savings in closed-book products across 9.4 million customers.
Affected insurers’ share prices have remained stable after the announcement. The regulator came under fire in March 2014 after a pre-briefing on the review given to the Telegraph resulted in providers’ stock plummeting.
FCA acting chief executive Tracey McDermott says: “Given the long-term nature of closed-book products, it is vital that customers are treated fairly and given the right information on an ongoing basis in order to help them make important financial decisions.
“We expect all firms with closed-book customers to take into account the findings we have published today and ensure they are treating their closed-book customers fairly.”
“The practices at some firms appear to have been poor. We have particular concerns regarding how some firms communicated with their customers about exit and/or paid-up charges. We are now doing further work to understand the reasons for these practices, whether customers may have suffered detriment as a result and, if so, how widespread these issues are.”
Individuals personal pensions, including Sipps and retirement annuity contracts, individual whole of life policies, endowments and investment bonds were in scope.
The FCA did not look at how the products were sold.
The FCA says: “We had identified some risks which could lead to long-standing customers being treated unfairly, such as firms benefitting from customer inertia by keeping them in high-charging, poorly performing products or by cutting costs in a way that was detrimental to customers.”
The regulator has launched a consultation on proposed non-binding guidance.
ABI director of regulation Hugh Savill says: “This review raises various issues and we will study it in detail before responding more fully. However, it should be noted that products sold today bear little resemblance to those described by the report.
“The long-term savings industry is now modernising and focused on serving its customers, through auto-enrolment pension products or helping them make the most of the new pension freedoms.”
The move follows a number of providers capping their exit fees in the past few days.
This week Money Marketing revealed Standard Life introduced a 5 per cent cap on exit penalties for thousands of individual and workplace pension customers.
The insurer made the change in January ahead of Chancellor George Osborne announcing the FCA’s new duty to impose a cap on “excessive” exit fees.
In addition, Money Marketing also revealed Prudential will be announcing a cap at “less than 5 per cent” in conjunction with its Independent Governance Committee’s maiden annual report, due in April.
Aegon is also removing exit penalties from workplace schemes as employers hit staging dates.