More than 100,000 pensioners in poor health who were mis-sold annuities will be compensated under a formal redress scheme being enforced by City watchdogs.
The annuity mis-selling scandal explained | What are annuities?
Annuities are a type of insurance that turn a pension into a lifetime income. Until March 2014, when the Government announced
An investigation by the Financial Conduct Authority suggests one in three insurance companies frequently failed to ask savers about their health or alert customers to better deals for which they qualified.
Of particular concern were sales made over the phone, where the regulator found evidence that staff failed to explain that they could have got higher rates because of their health.
Annuity rates can be boosted for a range of conditions from high blood pressure, which may result in a 2 per cent lift for savers, to more serious illnesses such as cancer or strokes which can add 40 or even 50 per cent to the value of payments.
In March 2015 this newspaper revealed the watchdog’s plans to compensate pensioners who should have been sold “enhanced” or “impaired life” annuities.
The regulator estimated the average affected customer, with a pot worth £25,000, would have lost out on between £120 and £240 in annual payments. Over a typical 25-year retirement this equates to £6,000.
Firms are now being forced to review all annuity sales since 2008 and compensate customers who have suffered financial loss as a result of being offered the wrong deal.
The study investigated seven firms which make up a third of the annuity market, where it is estimated 90,000 people have suffered financial loss.
The FCA will now investigate the remaining third to check for mis-selling. Annuity holders are being urged to contact their providers if they believe they may have been mis-sold.
Baroness Altmann, the former pensions minister, said the results were “further proof that the annuity selling process has failed customers”.
Yvonne Braun, director of long-term savings and protection policy at the Association of British Insurers, which represents annuity providers, said: “The industry has been focused on improving people’s experiences of making retirement choices in recent years and is working hard to ensure the freedom and choice reforms significantly improve customer engagement in pensions.”