"Prudential’s annuity back book is 3 to 4 times more substantial than Standard Life’s, so the potential compensation costs involved for them could be significant"
The review will examine whether these customers were given sufficient information about the availability of, and their potential eligibility for, enhanced annuities.
The review will also look at whether these customers could have potentially received a higher income from Prudential or another provider.
On Prudential's website, the firm says it will contact customers who may not have been given sufficient information and will provide redress, where appropriate.
The FCA launched a review of annuity sales practices in 2015 and the results were published in October last year.
The regulator concluded that many firms provided clear and comprehensive information to customers and written communication tended to meet the standards required. However, the FCA had some concerns about telephone calls where customers may not have been given sufficient information about the availability of, and their potential eligibility for, enhanced annuities.
Those firms were then 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.
Standard Life announced this morning that it has made provision for redress of £175 million in respect of its own annuity sales.
Tom McPhail, Head of retirement policy at Hargreaves Lansdown, commented: “Prudential’s annuity back book is 3 to 4 times more substantial than Standard Life’s, so the potential compensation costs involved for them could be significant, though it is important to note they have not yet put a price on it. This review is in respect of past annuity sales where the insurance companies largely followed the letter of regulatory law but demonstrably failed to keep within the spirit of regulations. Customers who might have been eligible for an enhanced annuity were simply sold a standard terms contract, resulting in a lower level of income.
“The way to avoid this situation arising in the future is for customers to shop around on the open market. Worryingly, FCA data published only yesterday shows that over half of investors retiring today are still buying their retirement income arrangement from their existing pension provider, which begs the question as to whether the problem has actually been fixed.”
