This week two news items have raised the ugly spectre of prospective major ‘mis-selling’ scandals in pensions. Both should be taken very seriously.
The first came following last Saturday’s splash in the Daily Telegraph, which claimed that hundreds of thousands of people may be entitled to compensation over past annuity sales.
It was based on an admission from life company Aviva that it had already initiated a redress programme for around 250 customers who would have qualified for an enhanced annuity, but were sold a conventional alternative in 2013, following a telephone sales process which did not ask any health questions.
Aviva said it was making average back payments of £500 and uprating future income payments by around £120. It has closed the telesales operation in question.
You might think it a tad sensational to present this isolated case involving hundreds of customers as a portent of a restitution deluge to come. I do not.
According to figures published by the Financial Conduct Authority earlier this year following a review of 330,000 of the total 420,000 individual annuities sales from 2012, less than 14,000 people bought an enhanced annuity over that year. Studies suggest more than 125,000 should have.
Whether or not the 111,000 or so people that year - and similar numbers in other years - have been ‘mis-sold’ will depend, using Aviva’s logic as a case in point, on whether they were asked health questions and made properly aware they could shop around and possibly achieve a substantially higher rate.
I’ve mentioned the annuity sale to my father before and will do so again: no real mention of open market option, no health questions, no substantive reference to enhanced rates available elsewhere. Mis-sold.
The FCA is due to report findings from a second thematic review into annuities over the next few weeks. It could make the case for the sort of action Aviva has taken being applied on a much wider basis.
What evidence there is appears damning - and intimations in the first report that profit incentives were skewed will have been lent credence by recent results from the likes of Prudential, which showed sales broadly flat, but earnings sharply down as annuities dropped as a proportion of new business.
There is also heavyweight support for many past sales to be treated as mis-selling, with influential pensions expert and government older workers ‘tsar’ Ros Altmann quoted in the Telegraph piece as saying this could be “possibly the worst mis-selling scandal ever seen in Britain”.
Ms Altmann added it could be more pernicious even than PPI “because it concerns people’s life savings and the sales are irreversible”.
All of this brings me to the second mis-selling warning of the week, from Labour shadow ministers in relation to the growing complexity in the upcoming pension reforms.