It also provides us with a clear picture of its preferred approach to regulation, containing several key elements that we can expect see in future rulings:
- A thematic review that lays out the regulator’s desired consumer outcomes and the improvements required across the industry.
- Follow-up investigations at company level looking at the practices being followed within this context.
- A significant financial penalty for identified breaches, reduced by a reward for early co-operation.
Consumer outcomes
The thematic review of annuity sales practices was one of the first initiatives launched by the FCA in 2014, on the back of concerns that consumers were not shopping around to obtain the best available rates.
In its initial review it found that 60 per cent of consumers were not switching providers when they bought an annuity, despite the fact that around 80 per cent of these consumers could get a higher income on the open market.
For enhanced annuities the result was even worse, with an estimated 91 per cent likely to be able to find a higher income than the one offered by their existing provider.
The FCA’s follow-up work identified that providers were not doing enough to actively encourage customers to shop around, and while the majority of customers were informed about enhanced annuities, many were not told they could shop around for them.
Buying an annuity is a one-off decision and not looking for the best rate impacts on customers for the whole of their lives. In the case of those eligible for an enhanced annuity rate, the impact was estimated to be, on average, around £110 to £175 a year.
Performance against standards
SLA, which has since been sold to Phoenix Group, was judged to have breached two of the FCA’s principles of business in relation to non-advised annuity sales:
It failed to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems in respect of complex products for which the ordinary customer’s need for accurate information is high; and
It also failed to pay due regard to the interests of its customers and treat them fairly.
Within this there are some more explicit issues, which, with hindsight, are obvious sore points with the FCA:
