On 11 December 2014, the FCA published a report on the findings of its thematic review of the non- advised sales practices of pension providers offering annuities to their existing customers.
Following its first thematic review of annuities, TR14/2, published in February 2014, the FCA announced a review that aimed to understand whether firms’ sales and customer retention practices contributed to customers not shopping around and switching. It seeks to mitigate the risk that consumers have a reduced income in retirement as a result of buying the wrong type of annuity or not shopping around on the open market.
In its latest review, the FCA found evidence indicating that firms’ sales practices are contributing to consumers not shopping around and switching, and at times to consumers potentially buying the wrong type of annuity, in particular not purchasing an enhanced annuity when they may be eligible for one. This means consumers may be missing out on a potentially higher income in retirement as a result.
The FCA found examples where the Association of British Insurers (ABI) Code is not being applied in practice, particularly where the requirements under the ABI Code are less prescriptive and require more judgement from firms to ensure customers are treated fairly as required by the FCA’s rules.
As a result of the review, the FCA is asking some firms to do further work to determine if its findings in relation to enhanced annuities are indicative of a more widespread problem and/or have led to poor consumer outcomes when buying annuities. Once the FCA has reviewed the additional evidence gathered by the affected firms, it will consider what further action, if any, to take.
The FSA’s previous thematic work on open market options in 2008 clearly highlighted that firms needed to make improvements in relation to the way consumers were informed about shopping around for enhanced annuities. The FCA says that it believes that from that time firms should have been in no doubt about their responsibilities to their customers in relation to enhanced annuities.