Which? has spoken to the Financial Conduct Authority (FCA) this week as speculation grows that a report it’s due to publish in December will address historic sales of annuities.
There has been speculation this week that many consumers should have been sold ‘enhanced’ annuities – those which give you a higher income if you have a medical condition such as diabetes or high blood pressure. Annuities are an insurance contract which turns your pension fund into a guaranteed regular income for the rest of your life, when you retire.
The FCA has long been investigating the sale of annuities, and it has told Which? that its findings will be published soon – possibly in early December.
There are some key issues around the sale of annuities that the forthcoming report is expected to address:
- Were customers asked about their health when they were sold an annuity?
- Were they aware of the open market option – the ability to shop around and not buy an annuity from their pension provider?
- Was the difference between a ‘single life’ and ‘joint life’ annuity explained?
- Did customers have a small pension fund (total pots worth less than £18,000) that they could have taken in cash?
The annuity provider Aviva has already said that it has found an error in the sales process for an number of annuity customers. It appears that some sales advisers were failing to ask customers about their health, which could have resulted in them getting a lower-paying standard annuity, when they qualified for a higher-paying ‘enhanced’ version. It is now offering back-dated payments to those affected.
Which? will analyse what the FCA report means for consumers, and we’ll help you to seek redress if you think that you weren’t given all the relevant information or options when making an annuity purchase.
Pension changes affect annuities
For those who haven’t yet retired, the pension changes announced by George Osborne in the March 2014 Budget will mean that you will no longer have to buy an annuity with your pension savings.
People have historically bought an annuity when they retired as they haven’t been able to take their full pension pot (subject to tax) and income drawdown – where your pot stays invested and your draw money out as you need it – has been relatively expensive and inflexible.
Annuities may still form part of your retirement planning, particularly if you suffer from ill health and qualify for a higher pay-out. You might also buy an annuity with part of your fund and use the rest for income drawdown.
The changes happening in April 2015 will give consumers greater freedom in taking their pension money and people may now choose to keep their money invested.
Sales of annuities have fallen rapidly in the aftermath of the Budget announcement as people have chosen to consider income drawdown, which is more accessible now, or have put off making a decision until April 2015.