When the time comes to take an income from your pension pot, many people choose to buy an annuity.
This financial instrument is designed to convert the capital value of a pension pot into a guaranteed income for life.
For many people entering retirement, an annuity is a good choice to provide a retirement income for life.
But buying an annuity can involve a complex set of decisions to ensure you are getting best value for money.
The Financial Conduct Authority (FCA) has published the findings of its thematic review of non-advised annuity sales practices.
They wanted to find out whether firms provided customers with enough information about enhanced annuities, a type of annuity offering a higher income to people with medical or lifestyle conditions.
The regulator examine 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 thematic review involved a review of the 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 review considered more than 1,200 non-advised sales made by seven firms which between them account for approximately two-thirds of the annuity market.
We are pleased to report that no evidence was found of an industry-wide or systemic failure to provide customers with sufficient information about enhanced annuities through non-advised sales.
In fact, the FCA found many of the firms provided clear and comprehensive information to customers with written communication tending to meet the standards required.
However, 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 2008 and, where appropriate, provide redress to consumers.
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.”
Some areas of concern have been highlighted by the FCA, which include call handlers at pension forms relying too much on scripts, customers not being made aware they could secure a high income by shopping around, and clear messages about enhanced annuities sometimes being undermined by subsequent comments made by call handers.
Here at Informed Choice, we believe that advice is essential when retirement income is at stake.
Only with professional independent financial advice can you be confident that all of the potential retirement income options are being fully considered and no vested interests are steering you in an unsuitable direction.
