At last! Pension firms to pay price for duping savers
Victims in line for millions in compensation
INSURERS are facing a multimillion pound compensation bill after a major report has revealed how they duped savers into taking poor value pension deals.
The City watchdog yesterday laid bare how pensioners were missing out on income of up to £230million a year because of the tactics used by some major firms.
The Financial Conduct Authority (FCA) found that companies had flouted their own fair play rules, sent out pages of jargon-filled documents, failed to encourage pensioners to shop around and used misleading telephone sales tactics.
It is a stunning victory for Money Mail – which last year exposed the dirty tricks that insurers use to stop customers getting the best pension income possible.
Yesterday, an expert said that hundreds of thousands of savers may be entitled to compensation if it is discovered that they were misled in signing up to a pension income known as an annuity.
Government-appointed older workers’ champion Ros Altmann said: ‘It is vital that anyone who has suffered from the disgraceful mis-selling identified by the regulator should be compensated.
‘A clear message needs to be sent to insurers that such careless selling of potentially unsuitable and irreversible products is a serious failure that will result in money being paid out.’
In 2013, the FCA launched an investigation to probe why pensioners were failing to get the best deals. Yesterday, it described how they were misled. It found:
Staff failed to tell customers they could get a better value pension by shopping around;
Firms flouted their own fair play rules, with one insurer viewing them as a ‘threat to its business model’;
Firms failed to tell poorly savers they can get a better deal by shopping around even when their health issues were highlighted;
One firm tried to deter ill customers from taking a special deal because they would have to wait longer to get their tax-free cash;
The head of annuity sales at one firm was paid in line with the number of customers it managed to keep on its books. Every year, around 400,000 people turn their pension pots into an income for life using an annuity.
The amount that retirees can receive from an annuity varies hugely between insurers, and the
‘Licence to print money’
sick or smokers can get much bigger payouts. Insurers have their own codes of conduct, which lay out the responsibilities of firms to tell customers they should shop around for the best deal. However, around four in ten pensioners just take a payout offered by the insurer with which they have saved. The FCA found that 79 per cent of them could have got a much bigger income if they had shopped around. And 91 per cent of savers who are ill or who smoke could also have got a bigger income – in some cases as much as 40 per cent.
In total, 150,000 people a year receive a worse income than they should have. And one in five never even realised that they could switch to a better deal.
Neil Duncan Jordan of the National Pensioners Convention, said: ‘Annuities have often been a licence to print money for those selling them. Uninformed, vulnerable customers put faith in companies to give them help but they have been let down.’ The FCA has demanded the insurers’ code of practice be scrapped and has ordered firms who are believed to have sold unsuitable annuities to review sales dating back to 2008.
An estimated 2.4million annuities are thought to have been taken out since this time.
Pensions minister Steve Webb said: ‘The most striking thing is the FCA is suggesting if you try to buy an annuity, the company will have to do the shopping around on your behalf. If they can make that work, it is a game-changer. It could be revolutionary.’
The FCA added that firms need to overhaul their practices ahead of pension reforms coming in next April which will allow savers to cash in their pension pots rather than having to buy an annuity.