The annuity industry has been given a “stark reminder” that more improvements are needed by a regulatory review into the sector.
This has been the reaction to a Financial Conduct Authority thematic review on the non-advised sale of annuities, published this morning (14 October).
While the regulator found no evidence of industry-wide or systemic failings, it found practices at some firms could lead to some consumers losing out.
Some pension providers have been told to review all their non-advised annuity sales dating back to July 2008 but the regulator has said its findings suggest all firms could improve their sales processes and customer communications.
Stephen Lowe, group communications director at Just Retirement, said: “The FCA’s interim findings are a stark reminder that further improvements need to be made by some firms to ensure customers have the best possible opportunity to obtain good value guaranteed income for life solutions.
“The FCA’s work is continuing outside of the initial sample. The industry needs to take on board these lessons and consider how we now help those people purchasing drawdown products to get access to good information and support to shop around.”
Former pensions minister Baroness Altmann said the FCA had taken too long to address this issue.
She said: “Many of those who have lost out most were seriously ill, but were sold an annuity that assumed they were in excellent health.”
Colin Thompson, an adviser with Hertfordshire-based Provisio Chartered Financial Planners, said: "Enhanced annuities is something people won't necessarily know themselves and they could be missing out on significant increases in income. Even a minor thing such as asthma can make a small difference.
"From the provider point of view most of the letters we see these days do seem to mention the fact that enhanced annuities are available but based on this research there are some not doing that, which isn't very fair."
Among the failings the FCA found was a heavy reliance on scripts among call handlers which meant they couldn’t respond to clients’ needs.
Where firms did not sell enhanced annuities, they did not always inform customers of this or may not even mention them at all when speaking to customers.
Conversations often “only reacted to customers’ questions” and the provider took no steps to reiterate the customer’s eligibility for an enhanced annuity.
According to the FCA’s findings, between 39 per cent and 48 per cent of customers who bought a standard annuity from their current pension provider may have had qualifying health or lifestyle conditions which would have made them eligible for an enhanced annuity.
Yvonne Braun, director of long-term savings and protection policy at the Association of British Insurers, said: “We are pleased but not surprised that this thorough and wide-ranging review by the FCA found ‘no evidence of an industry-wide or systemic failure to provide customers with sufficient information about enhanced annuities through non-advised sales’.
“As the FCA points out, the information firms have given customers about enhanced annuities in the majority of cases has been timely, relevant and adequate and enabled customers to make informed decisions.
“The industry has been focused on improving people’s experiences of making retirement choices in recent years and is working hard to ensure the freedom and choice reforms significantly improve customer engagement in pensions.”
