Pensions - Articles - FCA publishes thematic review of annuity sales practices


The Financial Conduct Authority (FCA) has today published the findings of its thematic review of non-advised annuity sales practices. The FCA wanted to establish whether firms provided customers with sufficient information about enhanced annuities.

 The FCA looked at whether firms made customers aware of their potential eligibility for enhanced annuities and whether they encouraged them to shop around in order to potentially get a higher income from another provider.
  
 The FCA reviewed non-advised sales of annuities made by pension providers to their customers between May 2008 and April 2015. The FCA looked at the information provided in respect of enhanced (sometimes called impaired life) annuities.
  
 The FCA review looked at more than 1200 non-advised sales at seven firms which between them account for approximately two-thirds of the annuity market.
  
 The FCA found no evidence of an industry-wide or systemic failure to provide customers with sufficient information about enhanced annuities through non-advised sales. The FCA found many of the firms provided clear and comprehensive information to customers with written communication tending to meet the standards required.
  
 At a small number of firms the FCA did have concerns when significant communications took place orally – normally over the phone – which was likely to have caused some customers to purchase a standard annuity when they may have been eligible for an enhanced product.
  
 These failings were of sufficient concern at a small number of firms that they are now being asked by the FCA to review all non-advised sales from July 20081 and, where appropriate, provide redress; these firms are also being investigated by the FCA’s Enforcement Division to determine whether further action is necessary.
  
 Megan Butler, director of supervision – investment, wholesale and specialist at the FCA 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.”
  
 As part of the paper published today the FCA has highlighted a number of areas of concern found as part of its review.
  
 These include:
     
  1.   call handlers sometimes being heavily reliant on call scripts, which meant that they were often unable to respond to the clients’ needs or clarify areas of misunderstanding;
  2.  
  3.   customers were not always made aware that they could obtain a higher income by shopping around, even when enhanced annuities were discussed;
  4.  
  5.   clear messages about enhanced annuities were sometimes undermined by subsequent comments which included call handlers under-playing the level of increase which a consumer may obtain by shopping around;
  6.  
  7.   where firms do not sell enhanced annuities, they did not always inform customers of this or may not even mention enhanced annuities at all when speaking to customers.

 In the report, the FCA encourages all firms to consider how their communications and sales process may be strengthened to ensure consumers are getting all the information they require at the time they require it. The FCA also encourages 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.

 Approximately a third of the sector falls outside the FCA’s sample. In order to take a rigorous and comprehensive approach the FCA will also be asking a small number of the largest firms not involved in the original sample to carry out a review to ensure they do not have any concerns about their non-advised annuity sales. This review will be overseen by the FCA.

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