The Financial Conduct Authority and the Treasury may not have seen eye-to-eye over the manner in which the FCA released news about the scope of its review of annuity sales. However, the two seem to agree about one thing: they are both worried about liabilities for historic advice.
On the one hand the FCA has curtailed the scope of its review into past mis-selling of annuities, implicitly recognising that there should be a time limit for redress. On the other, the FCA and Treasury have made it clear that Pension Wise will provide guidance rather than advice and should not be subject to the Financial Ombudsman Service, suggesting that the Treasury does not want to bear any future liabilities for advice provided as part of its reforms.
Following in the footsteps of its £3.15m mea culpa, the FCA released its long awaited retirement income market study, MS14/3.2, and a thematic review examining annuity sales practices, TR14/20.
Both reports suggest that the FCA has learnt a lesson from the debacle that followed its media briefing. Not the weighty thoughts of Sir Simon Davis in his 226-page review, but a much simpler lesson: time limits matter.
Ignoring them can cost £3bn of shareholder value, your bonus, or even your job.
It was the suggestion in The Daily Telegraph that the FCA wanted annuity providers to review decades’ worth of past annuity sales which originally caused such alarm on the stock market. Contrast this with the muted response to the publication of the final report which, rather blandly, “ask[s] the majority of firms to do further work to determine if [the FCA’s] findings in relation to enhanced annuities are indicative of a more widespread problem and/or have led to poor consumer outcomes” in “the period since the FSA’s previous thematic work on Open Market Options in 2008”.
Given that in both the recent thematic review TR14/20 and the Open Market Options review the regulator (the FCA and its predecessor, the FSA) found that annuity providers were not doing enough to encourage customers to exercise their right to purchase annuities on the open market by shopping around for the best annuity, one might wonder why firms need not consider those poor outcomes pre-2008 which the FSA saw as part of its 2008 review.
