Pension providers have failed to give their customers a good enough picture about their options at retirement and some groups face an enforcement investigation, the UK’s financial watchdog said.
The Financial Conduct Authority scrutinised what happens when savers use their pension pots to buy an annuity, particularly when they do not use a financial adviser.
It found that, in some cases, insurers were not open enough about the benefits of shopping around, especially when speaking to their customers on the phone.
The FCA said there was evidence of “particularly poor behaviour at a small number of firms”.
The study focused on information about enhanced annuities, which pay a higher income to those who are in poorer health and who have shorter-than-average life expectancy.
Some providers have been asked to review all non-advised sales since 2008 and were also being investigated by the regulator’s enforcement division to see if further action was necessary. The FCA declined to disclose the name or number of providers facing enforcement action.
“Annuities play an important role in providing an income for retirement. It is important that consumers get the right information at the right time in order to make the right decision for their retirement,” said Megan Butler, director of supervision at the FCA.
Annuities provide a secure income for later life with sales of the policies reaching around £12bn when the FCA first starting probing the market in 2013, after concerns providers were not encouraging their customers to shop around for the best deals.
Despite the problems in some areas, the FCA said it had not found evidence of an industry-wide failure to provide the right information.
The Association of British Insurers said that it was “pleased but not surprised” that the FCA’s review did not reveal a widespread problem.
Yvonne Braun, director of long-term savings and protection policy at the ABI, said: “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.”
However, Ros Altmann, the former pensions minister who campaigned for the original annuity probe in 2013, said the findings could not be considered comprehensive as the study only covered a sample of 1,200 sales out of millions between 2008-2015, and one-third of the market was not sampled.
“I don’t think we can be confident about the findings,” said Baroness Altmann.
“It is also wrong that the FCA has taken so long to reach a conclusion as in 2008 it first said that providers must improve the way they sell enhanced annuities. Here we are in 2016 with clear evidence of poor sales practices and so far nobody has had a penny of redress, and the FCA is still investigating.”
It is the second time this year that the FCA has instigated enforcement investigations into life insurers. In May, the watchdog revealed that six groups, including Prudential and Old Mutual, were being investigated over what they told customers about exit fees on certain products. That followed another broad review of the industry, which found patchy results around what was communicated to customers.
Annuities have also put the regulator under the spotlight. When the FCA was first to reveal it would look at exit fees in March 2014, shares in the largest UK insurers plummeted after a botched briefing led to an erroneous article in the Daily Telegraph suggesting exit fees could be banned altogether and 30m policies reviewed. It took the regulator 16 hours to put out a corrective statement.
Following the incident, the then UK chancellor George Osborne wrote to the FCA to express his “profound concern”. It led to a £4m independent inquiry that ultimately cost the then FCA chief executive Martin Wheatley his bonus.
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