An inquiry into pension annuity mis-selling by the Financial Conduct Authority (FCA) could see pension providers paying out significant sums in compensation.
The FCA is analysing annuities sold to see if consumers’ health was taken into consideration – an essential factor in deciding whether individuals received a fair deal from their provider. It is thought that in many cases, customers were given a standard annuity rather than the enhanced annuity they were entitled to, thus missing out on up to 50% more annual income. It is estimated that thousands of consumers have been subject to a mis-sold annuity as a result.
Pension annuities explained
In the simplest terms, an annuity provider exchanges a pension pot for an annual income. An annuity can work out to be a better deal than the lump sum of a pension pot if the individual lives well beyond retirement age. But in cases of premature death the individual loses out.
As it is the provider’s professional responsibility to advise consumers of the best pension annuities deal for them, they are unable to do so if they fail to ask about an individual’s health situation. If in poor health due to certain medical conditions, an enhanced annuity should be offered, meaning a higher rate of income, as the provider would not expect to be paying out for as long a length of time.
Changes to the industry
The 2014 Budget saw Chancellor George Osbourne advise that anyone with defined contribution pensions would no longer be required to swap their pension fund for an annuity. Instead they would be entitled to free advice on the best way to invest their pension. The introduction of new pension freedoms earlier this year have also shifted the balance within the annuity market, with more people taking money from pensions earlier in life.
Current proposals from the government suggest a new annuities’ industry, given the new pension freedoms. Those who have taken an annuity prior to April 2015 could be entitled to exchange their annual income back to their annuities provider, receiving a lump sum in return.
This potential change adds further complications for those who have been victims of a mis-sold annuity prior to the new pension freedoms, and whether consumers would be able to pursue a mis-selling claim as well as selling their mis-sold pension annuity back to their provider.
Annuity Mis-selling Advice
If you were sold an annuity without being asked about your state of health, you may be missing out on extra income. TLW Solicitors’ Financial Mis-selling Team can investigate your case and advise on whether you received improper advice and are entitled to a larger sum plus compensation.
“The issue of Annuity mis-selling is something which may go back many years and affect hundreds of thousands of sales, unfortunately this is however one of a number of recent mis-selling scandals involving financial institutions. The review into the issue by the FCA is welcomed by our team of experts here at TLW, however we won’t rest on our laurels and we are actively looking into the issue ourselves.”