So now the spectre of a mis-selling scandal hangs over the annuity market. Well, it is hardly surprising, is it?
They have been flung at investors for decades with scant regard for suitability.
Aviva, having checked through its annuity sales, found 250 cases in which investors should have been offered an enhanced annuity.
Though small-scale, the implications are much wider.
Being Aviva it had the records, did the checks and put things right. Investors have received an average £500 back payment and will be an average £10 a month better off.
That is Aviva – a company which values its reputation.
So what is the rest of the industry doing? I cannot for one second believe that it is the only insurer which failed to ask the right questions about health and lifestyle or failed to frame them in the right way.
Aviva decided it had not been ‘treating customers fairly’. Remember that? It is a central tenet of financial regulation, but it often seems to be forgotten in the rush to maximise returns for shareholders or executive bonuses.
Search back into financial rules and regulations and you will find the open market option wandered into legislation in 1975 as part of the Finance Act.
Almost four decades, later just a third of customers use it. But how many millions have not even been told about it over those 39 years?
Then there is the question of advisers who have picked up a commission cheque for doing nothing because they sold a pension in the year dot, and 30 years later the investor has simply been given the off-the-shelf annuity.
The reason the financial services industry clung to annuities for so long was that they were weighed so heavily in their favour. Charges were obscure and profits high.
But that is all the more reason why investors should have been directed towards the correct product. And if the insurer did not offer an enhanced annuity, investors should have been told they were available elsewhere.
So who is going to be the next to own up? Are there any more honest insurers out there?
People trusted their savings to these firms over a long period and they had a right to expect to be directed towards the best product from the restricted annuity field when they retired.
Will the industry put this issue right on its own? Or must we once again endure the excruciating spectacle of watching the regulator force companies to treat their customers, both past and present, fairly?
A fork in the road
There’s an opportunity for financial services providers to get ahead of the game right now.
When the new freedoms come in next year, firms have two very clear paths. The first is to make drawing cash cheap and simple. This would be the ‘using your pension like a cash machine’ option.