THE government's newly-appointed older workers' business champion Dr Ros Altmann has challenged insurers and the Financial Conduct Authority (FCA) over unfair practices in the sale of annuities.
Dr Altmann says the unsuitable sale by Prudential of an annuity to Royal London customer Wayne Davies, a 62-year-old man with cancer and a heart condition, is the "worst case I have seen of the UK annuity system failing its customers", adding: "I challenge providers and the FCA to explain how the current sales practices are fair to customers."
Dr Altmann said: "While battling cancer, Mr Davies e-mailed me in desperation, after both his pension provider Royal London and the annuity company it had a tie-up deal with Prudential denied responsibility for selling him an unsuitable product. "
In March last year, Mr. Davies was in poor health and needed his pension after being made redundant. He was undergoing tests for cancer, had a history of heart trouble, was partially disabled by polio and had smoked for 40 years. He was sent "many pages of paperwork by his pension provider, full of terms he had not come across before", Dr Altmann said. He had saved £27,000 with Royal London, a major employer in the Scottish insurance sector, which does not itself offer annuities.
Dr Altmann said: "Instead of sending their customers to a service which would help them choose the right type of annuity at a competitive rate, it (Royal London) had a tie-up deal with Prudential, under which it received 2.5 per cent commission on each annuity sale.
"The terms of the deal did not require the Pru to offer annuities which catered for people in poor health, nor ensure competitive rates for the standard annuities."
Mr Davies was offered his tax-free cash plus a standard single life annuity at a 4.4 per cent rate - giving him around £17 a week. The best 'impaired life' annuity would have paid out up to 30 per cent more.
"The regulatory system and pension companies leave it up to each individual to know what to do," Dr Altmann said. "Two weeks after he bought the annuity, he was confirmed as having cancer. He immediately wrote to Royal London but was not told that he could have undone the annuity at that time within the 'cooling-off period'. He subsequently realised that this annuity was not right for him and went to his MP, who wrote to Royal London and the Prudential but each blamed the other and he received no redress. A complaint to the Financial Ombudsman has also delivered no result."
From next April people over 55 will not be compelled to buy an annuity, but meanwhile a review is already under way by the FCA which in February reported that the annuity market was "not working for consumers".
Prudential, which has apologised to Mr Davies and returned his fund, said: "These are issues that the current reforms with the government will address and we are working with the rest of the industry to ensure they are addressed to the benefit of consumers."
Royal London said it was "seriously looking at" the situation.
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