The Financial Conduct Authority (FCA) has found no evidence of ‘an industry-wide or systemic failure’ to provide customers with sufficient information about enhanced annuities through non-advised sales.
Indeed, its thematic review of non-advised annuity sales practices concluded many of the firms reviewed had provided “clear and comprehensive information to customers with written communication tending to meet the standards required”.
In some instances, however – when “significant communications took place orally, normally over the phone” – the regulator suggested this was likely to have caused some customers to purchase a standard annuity when they might have been eligible for an enhanced product.
The FCA said these failings were of sufficient concern at a small number of firms they were now being asked to review all non-advised sales from July 2008 and, where appropriate, provide redress. These firms are also being investigated by the FCA’s Enforcement Division to determine whether further action is necessary.
The thematic review was set up to ascertain whether firms provided customers with sufficient information about enhanced annuities. The regulator looked at whether firms made customers aware of their potential eligibility for enhanced annuities and whether they encouraged them to shop around in order potentially to obtain a higher income from another provider.
The review considered more than 1,200 non-advised sales at seven firms that between them account for some two-thirds of the annuity market. It covered non-advised sales of annuities made by pension providers to their customers between May 2008 and April 2015 and information provided in respect of enhanced or ‘impaired life’ annuities.
FCA director of supervision, investment, wholesale and specialist Megan Butler (pictured) said: “While we have found particularly poor behaviour at a small number of firms, there is no evidence 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 and consider whether they can make improvements.”
As part of its review, the FCA highlighted a number of areas of concern, including call handlers sometimes being heavily reliant on call scripts, which meant they were often unable to “respond to the clients’ needs or clarify areas of misunderstanding”.
It also found customers were not always made aware they could obtain a higher income by shopping around, even when enhanced annuities were discussed, while clear messages about enhanced annuities were sometimes undermined by subsequent comments. Furthermore, where firms did not sell enhanced annuities, they did not always inform customers of this or may not even have mentioned enhanced annuities at all.
The FCA has encouraged all firms to consider how their communications and sales process might be strengthened to ensure consumers are obtaining “all the information they need at the time they need it”. The regulator has also called on any customers who have already taken out an annuity, but feel they may have been given insufficient information about enhanced annuities, to raise this directly with their annuity provider.