FSA Calls For The Fair Treatment Of Annuity Customers

by Jason Gorringe, Tax-News.com, London

31 July 2008

A Financial Services Authority (FSA) review of the quality of annuity provider literature and alleged delays in the transfer of annuity funds found some good practice, but also that many firms must make improvements to ensure that pension customers are being treated fairly, it was revealed this week.

The FSA’s review found that:

• More than 60% of 55 annuity firms assessed provide clear information to pension customers approaching retirement age (‘wake up’ packs) to enable them to make informed decisions about their retirement options - in particular, the option to shop around for an annuity (the open market option). However, a significant minority of these firms provide material that fails to meet the FSA’s requirements.
• Delays had occurred in over 60% of 238 annuity transfer cases reviewed, which could be caused by various parties in the transfer process – including transferring and receiving pension firms, intermediaries and customers. The complexity of the process and confusion caused by the diversity of forms used to complete transfers were identified as key reasons for delays.

Individual feedback has been given to all firms involved in the review, the financial services regulator announced.

On transfer delays, the FSA will also be working with the industry, through the Association of British Insurers (ABI), to reform the overall process – in particular, to achieve standardisation and rationalisation of the systems and documentation involved in fund transfer.

This review links to the FSA’s broader work on Treating Customers Fairly (TCF), and the findings show that many pension firms must make improvements to their literature and processes by the regulator’s December 2008 TCF deadline.

The FSA will scrutinise how the industry has responded, and will consider taking direct action where change is not evident.

Sarah Wilson, director of TCF and insurance sector leader at the FSA, observed that:

“The decision on whether to buy an annuity from a current provider or to switch to another insurer on the open market can influence an individual’s lifetime income. Poor communications from insurers may result in people making poor decisions or failing to take any action to maximise their retirement income."

"At the same time, if a consumer decides to exercise the open market option, they can suffer if fund transfer does not happen in a timely manner."

“The way that firms deal with pension policyholders provides an indication of how they treat their customers more generally, and we will be looking for firms to demonstrate good practice in this area when we come to assess their overall TCF compliance in light of the December deadline," she added.

The FSA’s review forms part of the Government’s overall review of the open market option, announced in the December 2006 Pre-Budget Report.

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