Pensions: Compensation for those mis-sold annuities

By Kevin Peachey
Personal finance reporter

Image source, Thinkstock

Thousands of people in ill-health have been mis-sold pension annuities - an annual retirement income - and will be compensated, a regulator says.

An estimated 90,000 people were not told they could shop around or receive an enhanced annuity, the Financial Conduct Authority (FCA) said.

Enhanced annuities give people in poor health a better deal owing to their shorter life expectancy.

Compensation amounts to £120 to £240 for each year they had the product.

The FCA said it had unearthed concerns when firms spoke to customers on the phone. This led some customers to buy a standard annuity when they may have been eligible for an enhanced product that offered a better deal.

Those eligible would include people with health problems such as smoking related illness.

Despite the failures, the FCA review did not reveal a major systematic problem, it said.

'Poor behaviour'

The FCA reviewed non-advised sales of annuities made by pension providers to their customers between May 2008 and April 2015.

"Annuities play an important role in providing an income for retirement. It is important that consumers get the right information at the right time in order to make the right decision for their retirement," said Megan Butler, from the FCA.

"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."

Annuity rates - which determine the value of pension incomes - fell sharply after the UK's vote to leave the EU, although they had been falling for many years before that.

Sales were also knocked by new rules that allow people to take their pension pot in cash from the age of 55, subject to income tax.

Jackie Spencer, from the government-backed Money Advice Service, said: "Getting access to the right information at retirement is vital so that people can decide whether an annuity is the right option for them.

"Shopping around for an annuity and comparing the options will ensure that people are making the most of the money they have, and their money lasts for the full length of retirement."

Yvonne Braun, from the Association of British Insurers, said: "The industry has been focused on improving people's experiences of making retirement choices in recent years."

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