STANDARD Life is facing a compensation bill of up to £125 million after being ordered by the Financial Conduct Authority to carry out an investigation into how it sold annuities to retiring customers.

The insurance giant said yesterday that it was looking in detail at whether it made customers in ill health aware that their reduced life expectancy meant they were potentially entitled to enhanced retirement income.

While Standard Life did not reveal how much it could be liable for, an analyst note from investment banking group Jefferies said the figure was likely to be in the region of £125m.

Prudential, which like Standard Life sold a large number of annuities to customers who did not receive financial advice, has not announced whether it is also carrying out an internal review, although Jefferies estimates that it could face a compensation bill of £200m.

The figures take into account Financial Conduct Authority estimates that customers who should have been sold an enhanced annuity would be entitled to between £120 and £240 of additional income each year. They also include estimates of the cost of buying additional cover now.

Jefferies equity analyst Anasuya Iyer said: “Standard Life sold around 150,000 annuity policies over the July 2008 to April 2015 period worth £2.4 billion of annuities, nearly all of which are non-advised sales.

“Over the period [Prudential] sold around £8.6bn worth of UK annuities, where around 55 to 60 per cent were non-advised, non-guaranteed on our estimate, equating roughly to 160,000 customers.”