MSE News: Annuity sales practices failing pensioners, says FCA

bmm78

jamesd wrote: »

So, what of the cases where the ABI code was not followed?

We need to see more information to establish the scale and severity of ABI Code breaches, in particular the firm who reacted to the code as a perceived threat.

The key barometer for the further work planned by the FCA though appears to be the OMO thematic work in 2008, rather than the ABI Code implemented in 2013.

jamesd wrote: »

I really don't think that annuity sales are exempt from TCF requirements.

While TCF is a vital principle, it is often used far too loosely. It does not eliminate Caveat Emptor, and for non-advised sales customers still have to take responsibility for their decisions providing that the right information has been provided.

The only impartial assessments of "the right information" in the relevant period have been conducted by FOS, who have rejected the vast majority of annuity mis-selling complaints. If the FCA order redress now on sales previously assessed by FOS as compliant, that is a clear example of retrospective regulation and regulatory failure.

jamesd

Well, it seems that there already has been regulatory failure since the market was judged by the FCA as failing customers. Meanwhile some useful market incentives could be added by an MSE campaign to help people find out whether they were mis-sold by firms breaching the ABI code.

Personally I wouldn't have described 2013's 31% uphold rate for annuity sales or even the 2014 to date figure of 20% on more than double the number of complaints this year as being the "vast majority".

So far as the ABI Code goes, it seems that the FCA has adopted the view that it has failed to deliver sufficient changes since they are going to consult on replacing it with their own rules. That should be beneficial since it'll apply to all annuity vendors, not just members of the ABI.

That remuneration example was interesting. For the convenience of others, here's the relevant part from page 19 of the report:

"For example, one firm in our sample had a strategy that identified the introduction of the ABI Code as a threat to its business model. The firm responded to this perceived threat by instigating a programme that seeks to have regular touch points with customers to ease them through the retirement journey, and in so doing attempts to retain them as annuity customers of the firm. Of further concern, the head of the business line responsible for selling annuities to existing pension customers is, in part, remunerated by variable pay that is linked to the volume of sales of annuities to existing pension customers. "

gadgetmind

jamesd wrote: »

seeks to have regular touch points with customers to ease them through the retirement journey, and in so doing attempts to retain them as annuity customers of the firm

Perfectly normal, natural and healthy business practice.

remunerated by variable pay that is linked to the volume of sales of annuities to existing pension customers.

Ditto.

Customer retention, and rewarding people for achieving it, are surely what every business should be doing? OK, so they need to be honest with their customers as part of this, but do we really expect businesses to actively attempt to ditch customers and perhaps reward staff for driving them away?

bmm78

jamesd wrote: »

Personally I wouldn't have described 2013's 31% uphold rate for annuity sales or even the 2014 to date figure of 20% on more than double the number of complaints this year as being the "vast majority".

The complaints that are upheld for annuity sales generally fall into two categories:

a) Administration (eg delays, poor communication, individual errors)

b) Advice (pretty self-explanatory)

The headline figures for annuities may also include With-Profits annuities, where the uphold rate appears to be very high (I'm not 100% sure on that though).

I've reviewed nearly all of the published Ombudsman decisions on annuity complaints, and I have yet to find a single upheld complaint relating to the sales practices of non-advised annuities.

The default FOS stance has been that if the info was in the wake-up pack, and the customer didn't take advice, the complaint doesn't go anywhere. As per the quotes below from various rulings, responsibility lies with the customer, not the firm selling the product:

“I consider that the retirement documents gave Mr A clear information of his options at the time he chose to take his pension benefits. Had Mr A had any doubts about his decision then
I think it would be reasonable for him to have sought some kind of advice"

“<the provider> had no obligation to request medical information for Mr C. The onus was on Mr C to inform <the provider> that he wished to apply for an enhanced annuity"

“However I have to take into account that the documentation had provided made clear <the provider> did not sell all types of annuities – and it gave no indication within the quotations that they were based on any health conditions...As a result I consider Mr H would reasonably have been aware that he was not being given
an enhanced annuity quotation."

“<the provider> did however, have an obligation to provide Mr C with sufficient information to make an informed decision.
I agree with the adjudicator that <the provider> did so and correspondence sent to Mr C indicated that if he wished to apply for an enhanced annuity or had reason to believe he was eligible, then to contact them.”

If the FCA apply a different standard to these sales, it will be retrospective regulation, which they have explicitly stated they will not be applying. Either that, or FOS have not been applying the FCA's guidance as they should have been, or maybe even the FCA's guidance wasn't as clear as they have suggested in last week's review.

jamesd

gadgetmind wrote: »

Perfectly normal, natural and healthy business practice.

Except for the unacceptable objective of breaching the ABI guidelines and FCA's intent because the objective and forms of the communication were as "attempts to retain them as annuity customers of the firm" rather than give guidance that could cause them to become well informed enough to buy from the open market.

gadgetmind wrote: »

Ditto.

Except unacceptable for a regulated financial business of this sort where the core desired consumer outcome by the regulator is the customers making well informed choices and buying from the open market. The FCA has forced changes in this type of remuneration structure in other areas because they encourage the types of practice that it has found harm consumers.

gadgetmind wrote: »

Customer retention, and rewarding people for achieving it, are surely what every business should be doing? OK, so they need to be honest with their customers as part of this, but do we really expect businesses to actively attempt to ditch customers and perhaps reward staff for driving them away?

The FCA expects an annuity business to refuse to sell to a customer if it has the information to know that the sale is unlikely to be in the customer's interest. Customer retention is not any part of the FCA's objective but is rather seen as an impediment to it when it comes to the transition from accumulation to taking income. The ABI requirement includes things like advance education about choices over the years with an emphasis on the ease and desirability of shopping around.

jamesd

bmm78 wrote: »

If the FCA apply a different standard to these sales, it will be retrospective regulation, which they have explicitly stated they will not be applying. Either that, or FOS have not been applying the FCA's guidance as they should have been, or maybe even the FCA's guidance wasn't as clear as they have suggested in last week's review.

It appears to me that the FOS have not been applying the FCA's guidance and that more work between the two of them would be appropriate so that the FOS does rule against firms that say breach the ABI code, whether in writing - where the FCA noted the information tended to be good - or in calls to complete sales where it found many troubling things.

In effect what appears to have often been happening is using correct paperwork to mask incorrect sales practices at the end of the process.

gadgetmind

jamesd wrote: »

guidance that could cause them to become well informed enough to buy from the open market.

Why on earth is that the job of the vendor rather than the customer?

The FCA expects an annuity business to refuse to sell to a customer if it has the information to know that the sale is unlikely to be in the customer's interest.

That's for the customer to judge, and no-one else.

Come on, adults need to be treated like adults, and act like adults.

jamesd

Adults don't need to be lied to by annuity firms disregarding medical conditions in annuity quotes for enhanced annuity quotes but not telling the customer that they have disregarded that part of what the customer asked for.

Unfortunately there are adults who will believe a firm when it tells them that the only way they can get the 25% tax free lump sum from their pension pot is to buy an annuity at the same time from the same firm. Such lying to customers isn't something a regulator charged with consumer protection can accept.

gadgetmind

jamesd wrote: »

Adults don't need to be lied to by annuity firms

Agreed. Do you have examples of this happening? And what percentage of sales do these represent?

disregarding medical conditions in annuity quotes for enhanced annuity quotes but not telling the customer that they have disregarded that part of what the customer asked for

Caveat Emptor..

Such lying to customers isn't something a regulator charged with consumer protection can accept.

Strong words. Have customers really been directly lie to as you claim?

jamesd

Best to read the report and some of the posts here where people asking us questions have told us even quite recently that they have been told that they have to buy an annuity to take a lump sum. Yes, there are examples in the report.