More than 17,000 Prudential customers have been offered compensation after call handlers incentivised by offers of spa breaks and holidays, failed to tell them they could shop around for a better annuity deal.
Insurance giant Prudential has today been fined £23.9 million by the Financial Conduct Authority (FCA) for failures relating to non-advised annuity sales.
According to the UK’s financial watchdog, between 2008 and 2017 the British insurer failed to mention to customers that they could potentially get a better deal by shopping around other providers.
“These are very serious breaches that caused harm to those customers,” said Mark Steward, executive director of enforcement and market oversight at the FCA. “Prudential is now rightly focused on redress and today’s financial penalty reinforces the cardinal obligation of fairness that firms owe to customers.”
Indeed, firms are required to provide information that is clear, fair and not misleading about enhanced annuities to help their customers make an informed decision about which product to buy - it’s vital that retirees make the right decision because once an annuity has been purchased, you cannot change your mind.
Prudential also failed either to ensure that documentation used by call handlers was appropriate and to monitor calls with customers properly. The FCA said there had been a lack of appropriate systems and controls in place prior to 2013 and that Prudential had failed to monitor calls adequately.
As customers approached retirement, Prudential wrote to them providing information about their retirement options. However, Prudential also communicated with customers by telephone and call handlers did not mention the open market option – that is, the freedom to shop around other providers. Call handlers were incentivised by the possibility of earning an additional 37% on top of their base salary and winning prizes such as spa breaks or weekend holidays.
This is not the first time the problems with incentives and perks has come up in recent weeks; FTSE 100 wealth adviser St James's Place has said it will review its perks after it emerged advisers were being incentivised with cruise holidays and safaris.
As of September 19, 2019, Prudential has offered approximately £110 million in redress to 17,240 customers. Because Prudential has not disputed the FCA’s findings, it has qualified for a 30% on its fine, from £34 million to £23.9 million.
Financial Decisions
The difficulties savers face in making the best decision about their finances at retirement have become more prominent since the introduction of pension freedoms in 2015.
An annuity is an insurance product that you buy with your pension pot – it is often a popular option with retirees because it guarantees an income for life. Smokers or those with health problems may also qualify for an enhanced annuity, which offers a greater annual income.
But savers are no longer required to buy an annuity with their pension pot, but have the freedom to withdraw their full savings in cash or leave it invested in the stock market. But the FCA’s latest Retirement Income Market Study found that 48% of savers who accessed their pension in the past year did not take advice.
Dan Kemp, chief investment officer at Morningstar Investment Management, says there is a lot of "worrying data" in the FCA's report. "The main danger in retirement is 'longevity risk' or the possibility that you will outlive your money. It seems that many people are withdrawing their money too quickly, significantly increasing this risk and consequently imperiling the financial health of retirees."
Prudenial did not wish to comment.
