Up to 90,000 retirees have been mis-sold annuities and could be owed hundreds of pounds in compensation, the financial regulator has warned.
The people, who are in ill health, were incorrectly told they couldn’t shop around for a better deal or receive an enhanced annuity, which pays more generous rates to those with a shorter life expectancy.
The mis-selling occurred between July 2008 and April 2015
According to a report from the Financial Conduct Authority (FCA), those affected can reclaim between £120 and £240 for every year they’ve owned their mis-sold annuity.
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What the FCA said
“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,” the FCA said in a release.
“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 2008 and, where appropriate, provide redress."
It added that the firms in question will be investigated further by the FCA’s Enforcement Division to determine whether further action is necessary.
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How annuities are commonly mis-sold
While the regulator insisted there was no evidence of industry-wide failures when it comes to selling annuities, it did highlight four common errors. These are:
- 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;
- customers were not always made aware that they could obtain a higher income by shopping around, even when enhanced annuities were discussed;
- clear messages about enhanced annuities were sometimes undermined by subsequent comments which included call handlers underplaying the level of increase which someone might obtain by shopping around;
- where firms do not sell enhanced annuities, they did not always inform customers of this or did not even mention enhanced annuities at all when speaking to customers.
Can I make a claim?
The FCA is encouraging anyone who has already taken out an annuity, but feels they may have been given insufficient information about enhanced annuities, to raise this directly with their annuity provider.
Although the regulator’s review was carried out between 2008 and 2015, that doesn’t mean any policies weren’t mis-sold outside those date.
If you’re concerned, get in touch.
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What to do if you’re thinking about buying an annuity
Annuity rates have been tumbling for a number of years now, and with the new Pension Freedoms you have a number of options when it comes to choosing a retirement income.
If you do decide to choose an annuity, it’s vital you ensure you get the best possible deal to fund your retirement," says Tom McPhail, head of retirement policy at investment firm Hargreaves Lansdown.
“If you are buying an annuity, and tens of thousands of pension investors still do every year, you absolutely must shop around,” he says.
“In a small number of cases your existing pension provider may actually be able to offer you the best deal on the market but the chances are that they won’t. Shopping around means getting a better deal every year for the rest of your life; you only have to do it once so it is worth taking the time to do it well.”
Regardless of what you choose, make sure you take advantage of free pensions advice.
This is currently offered through Pension wise and The Pensions Advisory Service (TPAS), although the Government has announced it will be replacing them with a single financial guidance service at some point in the future.
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