The FCA has published Thematic Review 16/7: Review of annuity sales practices (TR16/7).
In TR16/7 the FCA reports on its thematic review that focused on non-advised sales of annuities made by pension providers to their own customers between May 2008 and April 2015. In particular, the FCA looked at the information provided regarding enhanced (sometimes called impaired life) annuities.
The FCA asked firms to assess whether they had ensured that, throughout the chain of information provided to the customer, there was a clear, fair and not misleading explanation of enhanced annuities which would enable the customer to understand whether they were potentially eligible for one and make an informed decision about shopping around.
The FCA reports in TR16/7 that it found no evidence that there is an industry-wide or systemic failure to provide customers with sufficient information about enhanced annuities through non-advised sales, which is resulting in actual loss.
However, the FCA did identify a high level of ‘Type 1’ non-compliance, a failure of process and therefore a breach of the regulator’s rules. However, despite the ‘Type 1’ fails the impacted customers typically still received sufficient information throughout the sale. The FCA also identified ‘Type 2’ non-compliance in a small number of firms. Type 2 failure would be where the firm concluded that a ‘Type 1’ fail was likely to have changed the customer’s behaviour in a way which may have caused the customer actual loss (i.e. as a result of the poor communication, the customer bought a standard rather than an enhanced annuity and/or failed to shop around). The FCA observed that ‘Type 2’ failures were typically caused by a firm’s poor handling of telephone conversations with their customer. These usually took place after the initial written wake-up packs were issued. Often, these conversations only reacted to customers’ questions and the firm took no steps to reiterate key messages about customers’ potential eligibility for enhanced annuities. In such cases, there was over-reliance on the messages given in the wake-up packs even though considerable time may have passed since they were received by the customer.
In terms of proposed remedies, the FCA will be asking a small number of the largest firms not involved in the sample to carry out a review to ensure they do not have any concerns about their non-advised annuity sales. The FCA also encourages all firms to consider how their communications and sales process may be strengthened to ensure consumers are getting all the information they require at the time they require it. The FCA encourages any customers who have already taken out an annuity, but feel they may have been given insufficient information about enhanced annuities, to raise this directly with their annuity provider.
View FCA thematic review report on non-advised annuity sales practices, 17 October 2016