The Financial Conduct Authority is to order a number of firms to review annuity sales back to 2008 after finding evidence of “concerns” but says its review of non-advised annuity sales found no widespread “systemic” problems.

The FCA found “particularly poor behaviour” at a small number of firms which may face enforcement action and has asked all annuity providers to consider whether they can make improvements to the annuity sale process. The regulator says that up to 90,000 consumers may have been sold a standard annuity when they could have qualified for an enhanced annuity. As a result up to £240 a year may have been lost by consumers in the affected cases and compensation may be required.

The regulator today published the findings of its thematic review of non-advised annuity sales practices. At a “small number of firms” it had concerns when significant communications took place orally – usually by phone – which was “likely to have caused some customers to purchase a standard annuity when they may have been eligible for an enhanced product.”

The FCA said: “These failings were of sufficient concern at a small number of firms that they are now being asked by the FCA to review all non-advised sales from July 2008 and, where appropriate, provide redress; these firms are also being investigated by the FCA’s Enforcement Division to determine whether further action is necessary.”

The review was set up by the FCA to establish whether firms provided customers with sufficient information about enhanced annuities. The FCA looked at whether firms made customers aware of their potential eligibility for enhanced annuities and whether they encouraged them to shop around.

The FCA reviewed non-advised sales of annuities made by pension providers to their customers between May 2008 and April 2015. The FCA looked at the information provided in respect of enhanced (impaired life) annuities. The FCA review looked at more than 1200 non-advised sales at seven firms which between them account for approximately two-thirds of the annuity market.

The FCA found “no evidence” of an industry-wide or systemic failure to provide customers with sufficient information about enhanced annuities through non-advised sales. The FCA found many of the firms provided clear and comprehensive information to customers with written communication tending to meet the standards required.

Megan Butler, director of supervision – investment, wholesale and specialist at the FCA, said: “While we have found particularly poor behaviour at a small number of firms, there is no evidence that firms have systemically failed to provide customers with the information required by our rules. Firms, particularly those outside our sample, should look at the report we have published today and consider whether they can make improvements.”

The FCA highlighted a number of areas of concern. These included:
- call handlers sometimes being heavily reliant on call scripts, which meant that they were often unable to respond to the clients’ needs or clarify areas of misunderstanding;
- customers were not always made aware that they could obtain a higher income by shopping around, even when enhanced annuities were discussed;
- clear messages about enhanced annuities were sometimes undermined by subsequent comments which included call handlers under-playing the level of increase which a consumer may obtain by shopping around;
- where firms do not sell enhanced annuities, they did not always inform customers of this or may not even mention enhanced annuities at all when speaking to customers.

In the report, the FCA encouraged 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 is also encouraging 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.

Approximately a third of the sector falls outside the FCA’s sample. The FCA will be asking a small number of the largest firms not involved in the original sample to carry out a review to ensure they do not have any concerns about their non-advised annuity sales. This review will be overseen by the FCA.