Standard Life and Prudential, historically two of the UK’s biggest annuity providers, have set aside millions of pounds to compensate people who have potentially been sold the wrong annuity product.
Standard Life and Prudential make annuity provision
Standard Life announced last week that it had made provision for redress of £175 million in respect of its own annuity sales.
Meanwhile, Prudential has also revealed that it has agreed to review its back book of non-advised annuities sold since 2008 – and to pay redress to customers where appropriate.
This follows an investigation from the Financial Conduct Authority (FCA), which found an estimated 90,000 people in ill-health had been mis-sold pension annuities and could be in line for compensation.
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Problems with sales of enhanced annuities
The FCA investigation, published in October 2016, found problems with the sales of enhanced annuities.
These products give people in poor health or with certain medical conditions a better deal owing to their shorter life expectancy. However, the regulator found that ‘a small number of firms’ had not told customers they could shop around or receive an enhanced annuity, causing some to miss out on a deal giving them a higher income.
Standard Life and Prudential are the first firms to publicly announce they were asked by the regulator to review their non-advised annuity sales as a result of this investigation. It has not been revealed how many firms in total were ordered to do this.
Customers found to have missed out on information about enhanced annuities will be compensated in cash.
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Pension freedoms and annuities
Before the pension freedoms were introduced in April 2015, savers were usually obliged to buy annuities with their pension money.
Annuity sales have declined since 2015, but figures from Hargreaves Lansdown highlight that around six out of ten people will still typically qualify for an enhanced annuity.
Tom McPhail, Hargreaves Lansdown head of retirement policy, said: ‘This review is in respect of past annuity sales where the insurance companies largely followed the letter of regulatory law, but demonstrably failed to keep within the spirit of regulations.
‘Customers who might have been eligible for an enhanced annuity were simply sold a standard terms contract, resulting in a lower level of income.’
Find out more: What the pension freedoms mean for you – Which? explains the April 2015 pension changes