FINANCIAL services giant Standard Life has been ordered to carry out an internal investigation into how it has historically handled retiring customers to identify whether it mis-sold annuities.
The Edinburgh-based firm has set aside an undisclosed sum to use as compensation after being asked by industry watchdog the Financial Conduct Authority (FCA) to review whether it had informed customers in ill health that they could be eligible to receive higher levels of retirement income than would normally be the case.
While the regulator, which recently performed its own review of the pensions industry, said it “found no evidence of an industry-wide or systemic failure to provide customers with sufficient information about enhanced annuities”, it has asked Standard Life to look more closely at its own practices.
In a statement, Standard Life said: “The FCA looked at whether firms made customers aware of their potential eligibility for enhanced annuities and whether they encouraged them to shop around in order to potentially get a higher income from another provider.
“At the request of the FCA, Standard Life will conduct a review of all non-advised annuity sales from July 2008 to identify whether our customers received sufficient information about enhanced annuities to make the right decisions about their purchase.”
The firm added that, while it “is not yet possible to determine a reliable estimate of the quantum of any redress associated with this process”, it has set aside a contingency fund “in light of the potential for a requirement to compensate customers flowing from the FCA’s review”.
“It is possible the financial impact may be mitigated by our group professional indemnity insurance,” it added.
While Standard Life was unable to confirm how many annuities it sells each year, it was one of seven firms taking part in the FCA’s review that between them account for two-thirds of the UK annuity market.
Around 400,000 people reach pensionable age each year and until April 2015, when reforms signed off by former Chancellor George Osborne came into force, all those with defined contribution savings would have used their pension pot to buy an annuity.
An annuity is essentially an insurance product that pays a regular income for life and insurance companies generally offer increased payments to those whose life expectancy is shortened either through ill health or lifestyle choices such as smoking because they are likely to make the payments for a shorter period of time.
The FCA carried out its review of non-advised annuity sales - those where the customer came direct to the annuity company on retirement rather than seeking the advice of a financial adviser first - to determine whether the industry provided customers with enough information about enhanced annuities at the point of sale.
The regulator, which looked at more than 1,200 non-advised sales across the seven participating firms, said it found that “many of the firms provided clear and comprehensive information to customers with written communication tending to meet the standards required”.
“At a small number of firms the FCA did have concerns when significant communications took place orally – normally over the phone – which was likely to have caused some customers to purchase a standard annuity when they may have been eligible for an enhanced product,” its report said.
“These failings were of sufficient concern at a small number of firms that they are now being asked by the FCA to review all non-advised sales from July 2008 and, where appropriate, provide redress.
“These firms are also being investigated by the FCA’s enforcement division to determine whether further action is necessary.”
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