Savers may get cash compensation for being ‘mis-sold’ pension annuities

SAVERS who were sold inappropriate retirement contracts are on the verge of winning compensation after the financial watchdog ordered a detailed examination of thousands of contracts sold since 2008.

The Daily Telegraph understands that the Financial Conduct Authority has started a “forensic” analysis of a large sample of sales from all of Britain’s major insurers.

More than 600,000 pensioners are believed to have been sold annuity contracts that failed to account for their health in the sixyear period under review. Most were never made aware that even relatively common ailments such as diabetes and hypertension could have boosted their payouts by 20 per cent or more. In some cases, savers who missed out face losses worth tens of thousands of pounds over the course of their retirements.

Investigators from the City regulator will pore over the details of hundreds of annuity contracts issued by each firm to establish whether savers were given a fair deal when they turned their pensions into a lifetime income.

The experts will analyse telephone conversations between firms and their customers and all paperwork sent to savers before they retired. If the watchdog finds evidence that a pension provider failed to treat its customers fairly it will order the company to issue compensation.

The chief executive of one of Britain’s largest insurers said: “The regulator wants to see whether customers understood the choices they were making. We could be forced to rectify any detriment [caused by savers getting the wrong deal] immediately.”

Until April this year, when George Osborne gave savers unlimited access to their retirement funds, most people with pensions linked to the stock market bought annuities in their 60s.

Research has shown that six in 10 should have qualified for

so-called “enhanced” annuities issued to those whose life expectancy is shorter due to smoking or ill health. Such deals are typically worth between 20 per cent and 40 per cent more than standard annuities, boosting the annual payment from a £100,000 fund by as much as £2,400 for a 65-year-old.

But a Daily Telegraph analysis of the paperwork sent to customers found just two in six companies made clear reference to the enhanced payouts. Often the information was buried in the small print in jargon such as: “We do offer enhanced rates for impaired lives”.

Senior officials at the regulator are understood to have admitted privately that it is “not acceptable” that vast numbers of pensioners missed out and now face lower payments for life.

But meetings are understood to have taken place with government ministers in which the FCA said it was concerned that a wide-scale compensation scheme could hit insurers’ profits and disrupt the financial markets. Insurers insist they operated in line with the regulator’s requirements and that few contracts, if any, were “mis-sold”.

Savers took advantage of George Osborne’s Isa reforms last year to move around £20 billion from other savings pots into the tax-free accounts.

In July 2014, the Chancellor effectively trebled the annual cash Isa allow- ance from £5,940 to £15,000. Savers responded by investing a record £61 billion in cash Isas, a 60 per cent rise on the £39 billion the year before. However, the Revenue said £500 million less went into stocks and shares Isas and 470,000 fewer people opened new accounts. Jason Hollands, of financial advisers Tilney Bestinvest, said: “This most likely represents a shuffling of accounts, rather than an increased propensity to save.”