The Financial Conduct Authority is concerned that some providers’ over-the-phone guidance has led to customers purchasing a standard annuity when they may have been eligible for a enhanced product.

The FCA’s thematic review looked at whether firms provided customers with sufficient information about enhanced annuities and if they were made aware of their potential eligibility for enhanced annuities. It also looked at whether pension providers encouraged consumers to shop around to locate a higher income.

The review, which took place between May 2008 and April 2015 considered over 1,200 non-advised sales at seven firms, which between them account for approximately two thirds of the annuity market.

The FCA found that the majority of the firms provided clear and comprehensive guidance to customers, with written communication tending to meet the standards required.

Nonetheless, the FCA noted its concern with a small number of providers whose communications took place orally, over the phone. It said that this was likely to have led to customers purchasing a standard annuity when they may have actually been eligible for an enhanced product.

As these sales were a concern at a number of firms, they have been asked by the FCA to conduct their own review of all non-advised sales from July 2008. These firms will also be probed by the FCA’s Enforcement Division to decide whether further action is required.

A number of areas of concern raised from the review include: call handlers being too reliant on scripts and so unable to respond correctly to consumers’ needs, customers were not made aware of better possibilities from shopping around and the failure to mention if they did not sell enhanced annuities or discuss enhanced annuities at all. When enhanced annuities were mentioned, they were sometimes undermined by subsequent comments.

FCA director of supervision – investment, wholesale and specialist Megan Butler, said: “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.

“While we have found particularly poor behaviour at a small number of firms, there is no evidence that firms have systemically failed to provide customers with the information required by our rules. Firms, particularly those outside our sample, should look at the report we have published today and consider whether they can make improvements.

Hargreaves Lansdown head of retirement policy Tom McPhail commented: “The FCA’s review has given the non-advised annuity sector a reasonably clean bill of health however they also found some failings which for a minority of customers may eventually lead to their getting some compensation.

“If you are buying an annuity, and tens of thousands of pension investors still do every year, you absolutely must shop around.”

An estimated third of the sector was not included in the FCA’s sample, and so it will also be asking a small proportion of the largest firms not involved in the original study to conduct a review to ensure there aren’t any concerns about their non-advised annuity sales. This will also be overseen by the FCA.

Share Story: