MSE News: Annuity sales practices failing pensioners, says FCA

"Annuity providers aren't doing enough to encourage customers to check if they can get a better deal elsewhere..."
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Annuity sales practices failing pensioners, says FCA

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  • worldtravellerworldtraveller Forumite
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    The full FCA Report "Annuities Sales Practices" can be found HERE (pdf)
    There is a pleasure in the pathless woods, There is a rapture on the lonely shore, There is society, where none intrudes, By the deep sea, and music in its roar: I love not man the less, but Nature more...
  • bmm78bmm78 Forumite
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    To sum it up:

    Providers are making clients aware of enhanced annuities and the ability to shop around.

    They are not however reinforcing this message throughout the sales process, and significant numbers of people are then buying the "wrong" annuity.

    People can draw their own conclusions over where the "blame" lies, and to what extent this is a mis-selling issue or a mis-buying one fuelled by ineffective regulation.
    I work for a financial services intermediary specialising in the at-retirement market. I am not a financial adviser, and any comments represent my opinion only and should not be construed as advice or a recommendation
  • PincherPincher
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    I would love to pay £50 for a four hour session with a good adviser to talk about my diabetes and family cancer history.
    Any takers? £20k pot.


    It's supposed to be a tailoring service, but nobody wants to pay for it at the bottom end of the market, so it will just end up as a small, medium and large service. The adviser has no time to deal with you, and basically size you up in ten seconds, and give you option 1, 2 or 3.
  • jamesdjamesd Forumite
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    The FCA made two announcements today, combined via its announcement here. The more detailed announcements for each part are at

    Retirement Income Study. Full MS14/3.2 Retirement income market study: Interim Report PDF.

    TR14/20: Annuities sales practice. Full PDF TR14/20 Annuities sales practices.
  • edited 11 December 2014 at 9:33PM
    jamesdjamesd Forumite
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    edited 11 December 2014 at 9:33PM
    bmm78, it's not close to as positive as that, with the FCA's own announcement saying this:

    "The review found evidence indicating that firms‘ sales practices are contributing to consumers not shopping around and switching, and significant improvements are required now"

    "The FCA is asking the majority of firms involved in the review to do further work under FCA supervision. This work is to determine if the findings in relation to enhanced annuities are indicative of a more widespread problem."

    When a regulator writes about significant improvements being required now and the I take those as a sign that the regulator seems concerned and inclined towards enforcement if firms don't improve quickly.

    This from the full report is also of interest:

    "the period since the FSA’s previous thematic work on Open Market Options in 2008. The findings from this work clearly highlighted that firms needed to make improvements in relation to the way consumers were informed about shopping around for enhanced annuities. Given that individual feedback was provided to firms and the findings were published, we believe that from that time firms should have been in no doubt about their responsibilities to their customers in relation to enhanced annuities"

    That reads to me as though the FCA is gathering evidence to be used to assess penalties for firms that failed to act sufficiently after 2008, via the supervised sampling of such cases.
  • edited 11 December 2014 at 10:48PM
    bmm78bmm78 Forumite
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    edited 11 December 2014 at 10:48PM
    jamesd wrote: »
    bmm78, it's not close to as positive as that, with the FCA's own announcement saying this:

    "The review found evidence indicating that firms‘ sales practices are contributing to consumers not shopping around and switching, and significant improvements are required now"

    "The FCA is asking the majority of firms involved in the review to do further work under FCA supervision. This work is to determine if the findings in relation to enhanced annuities are indicative of a more widespread problem."

    When a regulator writes about significant improvements being required now and the I take those as a sign that the regulator seems concerned and inclined towards enforcement if firms don't improve quickly.

    This from the full report is also of interest:

    "the period since the FSA’s previous thematic work on Open Market Options in 2008. The findings from this work clearly highlighted that firms needed to make improvements in relation to the way consumers were informed about shopping around for enhanced annuities. Given that individual feedback was provided to firms and the findings were published, we believe that from that time firms should have been in no doubt about their responsibilities to their customers in relation to enhanced annuities"

    That reads to me as though the FCA is gathering evidence to be used to assess penalties for firms that failed to act sufficiently after 2008, via the supervised sampling of such cases.


    The report was a mixed bag of good and poor practice, as is par for the course with thematic reviews.

    Customers appear to be given the required information in writing, both regarding the open market option and enhanced annuities:

    "Generally, the documentation provided to customers covered the necessary information and we saw examples that were clear and informative and provided the customer with the information
    needed to shop around."


    "We saw some examples of good practice in this area. For example, clearly highlighting in illustrations that customers should use these illustrations to shop around and compare the retirement income quoted with the retirement income offered by other providers. Also, firms using bold language and highlighted headings in written documentation to draw the customer’s attention to the shopping around message."

    "the customer literature provided appropriately informs customers about enhanced annuities and the criteria for qualifying for one"

    "In written correspondence, firms are also making it clear to customers that the benefit of an enhanced annuity is potentially a higher income in retirement"

    The key areas required by the OMO review are covered, and the communications appear to have been compliant with COBS 19.4.

    The issues highlighted in the report are mainly to do with the follow up communications (including telephone calls) and sales culture. Even in these areas, there were shades of grey, such as:

    "The majority of firms in our sample are also explaining the features and benefits of enhanced annuities to customers on calls and actively having conversations with their customers regarding the health and lifestyle factors that may make them eligible.

    We are therefore dealing with a group of sales where customers:
    • Did not take advice
    • Were provided with the required written information prior to sale
    • The written information was commonly followed up by verbal confirmation of the key issues
    • Sales were compliant with the relevant regulatory guidance

    We know how the Financial Ombudsman would view such cases, as their rulings show that similar sales have been virtually bulletproof.

    The FCA may of course point to systematic issues with principles 6 and 7, but it's a legitimate question as to whether these can or should override the above. As recently as a few weeks ago, the FCA confirmed that the chances of redress for non-advised sales would be very limited where customers were provided with sufficient information to make an informed decision. It's surely a grey area at what point written information on its own is insufficient, and where this has to be followed up verbally and repeatedly?

    The FCA are caught between a rock and a hard place. They are under massive pressure from the media, campaigners and politicians to ensure that people treated fairly. However, any far-reaching action will put them at odds with the collective force of the ABI, and fingers are already being pointed at the FCA. Admittedly, I don't know what their plans are with the evidence they are requesting, but to me they are looking to appease both ends with selective enforcement (similar to the recent Aviva cases) rather than the PPI-style free-for-all some people are predicting.

    The FCA have stated that they will not be applying retrospective regulation, so I think it is a case of whether firms have applied the OMO guidance and whatever individual feedback they received.

    While parts of the annuity market have been horribly dysfunctional, it has to be accepted that inertia/engagement issues and ineffective regulation have been major contributing factors to this.
    I work for a financial services intermediary specialising in the at-retirement market. I am not a financial adviser, and any comments represent my opinion only and should not be construed as advice or a recommendation
  • jamesdjamesd Forumite
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    bmm78 wrote: »
    We are therefore dealing with a group of sales where customers:
    • Did not take advice
    • Were provided with the required written information prior to sale
    • The written information was commonly followed up by verbal confirmation of the key issues
    • Sales were compliant with the relevant regulatory guidance

    We know how the Financial Ombudsman would view such cases, as their rulings show that similar sales have been virtually bulletproof.
    hardly, since:

    1. The FCA observed widespread disregard for regulatory guidance that it was mandatory for firms to comply with the ABI rules.
    2. The FCA found that there were firms which as a matter of policy did not inform consumers about the enhancements available to them even after the firm had been told of a medical condition that would have produced enhancement.
    3. The FCA found that there were firms which when told of medical issues and selling an enhanced annuity did not tell the customer that certain conditions that could result in enhancement hadn't been considered, but would be considered by a different provider.

    I'm not sure about you but I would not want to be a shareholder of a firm which was found to have been as a matter of policy disregarding medical information that would make the sale unsuitable. Nor would I want to be one of the individuals responsible for setting such a policy, for it's the sort of action that I hope would result in a ban on working in the industry, particularly in any position concerned with oversight.

    Given the clear warnings in past work I assume that there are going to be some very substantial fines and redress payments announced in a year or so.
  • bmm78bmm78 Forumite
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    FOS are required to take into account the regulator's rules, guidance, relevant codes, best practice, and an overarching assessment of "fair and reasonable".

    They have regularly and consistently rejected complaints about internal annuity sales conducted on a non-advised basis (the subject matter of this week's review). The sales were considered by the Ombudsman to be compliant by the standards of the time.

    The FCA cannot attack individual annuity sales without applying retrospective regulation.

    The FCA's remit and the scope of their review obviously goes beyond just checking sales on a case by case basis, and they can of course take action on sales practices, culture, pay structures etc. Widespread compensation claims along the lines of PPI are extremely unlikely though.

    jamesd wrote: »
    I'm not sure about you but I would not want to be a shareholder of a firm which was found to have been as a matter of policy disregarding medical information that would make the sale unsuitable. Nor would I want to be one of the individuals responsible for setting such a policy, for it's the sort of action that I hope would result in a ban on working in the industry, particularly in any position concerned with oversight.

    Given the clear warnings in past work I assume that there are going to be some very substantial fines and redress payments announced in a year or so.

    One of the striking things to me about the report is the widely differing interpretations of it. Some have seen it as the FCA sweeping the matter under the carpet, and indeed have gone as far as to say that it has effectively drawn a line under annuity mis-selling. Others are seeing it as the precursor to widespread mis-selling claims. As far as I'm aware, share prices of the major insurers haven't been impacted, and the consensus seems to be more towards the former.
    I work for a financial services intermediary specialising in the at-retirement market. I am not a financial adviser, and any comments represent my opinion only and should not be construed as advice or a recommendation
  • gadgetmindgadgetmind Forumite
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    I bought an Audi A8. The Audi dealer didn't tell me that other manufacturers made cars, or that there were Audi models perhaps more suited to my needs, and far cheaper, than the one that I bought.

    Sheesh!
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

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  • jamesdjamesd Forumite
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    bmm78 wrote: »
    FOS are required to take into account the regulator's rules, guidance, relevant codes, best practice, and an overarching assessment of "fair and reasonable".
    So, what of the cases where the ABI code was not followed?
    bmm78 wrote: »
    The FCA cannot attack individual annuity sales without applying retrospective regulation.
    I really don't think that annuity sales are exempt from TCF requirements.
    bmm78 wrote: »
    Widespread compensation claims along the lines of PPI are extremely unlikely though.
    I'm not so sure, though it can't be on PPI scale because of the number of sales involved. But I can envision MSE doing a guide to annuity mis-selling using the information from the FCA to work out what questions to ask to help determine whether anything improper happened.
    bmm78 wrote: »
    One of the striking things to me about the report is the widely differing interpretations of it.
    I'm rather more inclined towards the FT's view that "the findings were damning".
    bmm78 wrote: »
    Some have seen it as the FCA sweeping the matter under the carpet, and indeed have gone as far as to say that it has effectively drawn a line under annuity mis-selling. Others are seeing it as the precursor to widespread mis-selling claims.
    With FCA-suprevised followup work planned I don't think that it'll end up being regarded as sweeping things under the carpet.
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