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Standard and Resolution at risk from FSA annuity probe

by Daniel Grote on Feb 01, 2013 at 07:37

Standard and Resolution at risk from FSA annuity probe

Standard Life and Resolution have the most to fear from the Financial Services Authority's (FSA) investigation of annuity pricing, according to analysts.

The FSA has unveiled details of a two-stage investigation into annuities. The first phase of the work will focus on the level of detriment customers suffer from not shopping around, while the second will consider whether provider's processes facilitate shopping around.

Analysts Deutsche Bank said that providers selling annuities mainly to existing pension customers could be hit hardest by the probe, according to reports.

'A successful FSA investigation would logically impact on those companies primarily selling only to their in-house customers,' said Deutsche Bank analyst Oliver Steel in a note to clients. 'There is a risk that in-house annuity providers such as Standard Life and Resolution lose out.'

19 comments so far. Why not have your say?

From yet another cynic

Feb 01, 2013 at 08:05

Why leave out the likes of the Zurich who pushed their customers to buy annuities from L & G?

I am sure Zurixh will deny the fact that they received commission many times that of ordinary IFA from L & G had no influence on their advice

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Kate Brookes

Feb 01, 2013 at 08:33

Whilst they're at it, why not probe companies with appauling standards of service, who's unnescesary bungling and delays can cost clients the annuity rates they would have received if they had acted expediently.

Companies who have not yet discovered email in 2013, take 10 working days to provide a simple piece of information, refuse to accept a letter of authority on the most spurious of grounds and then send the information out anyway, provide conflicting and erroneous information that could lead to the wrong advice being given......Companies who do not treat their customers fairly, and appear to be working out of a castle somewhere in the middle ages.

Lets name and shame the worst I have experienced, Pheonix, NPI, Co-Op and I am thinking of adding Aviva to that list following a recent debacle, who should frankly be ashamed to be lumped in with the others.

I have had cases where I have had to fight my clients corner with these companies, lord alone knows what mess would have ensued if they had had to deal with these people alone. So, if the FSA want people to take the OMO, sort out the kind of companies where people just give in because it is all too much hassle, and who's paperwork is so unnesesarily complicated the average Oxford Don couldn't make head nor tail of it.

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John Phillips

Feb 01, 2013 at 08:45

How about GAR's where the contract allows for transfers in but you are told they don't. Canada Life tried this on with my client however I had on record 4 years of previous conformations that a transfer would be accepted which when challenged Canada Life accepted and "on this occasion" they would allow the transfer. How many clients didn't challenge them?

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Duncan Carter 2

Feb 01, 2013 at 09:27

It might be worth re-opening the Equitable Life debacle, how many people were persuaded to give up GARs and take up WP annuities instead. That particular bag of worms will never see the proper light of day but it should be part of this review.

In the meantime, the OMO has been available for all of my career (neck end of 30 years) but I am still outraged at the lack of intervention on the part of the various regulators to ensure this is properly promoted given the evident lack of general financial awareness. Vested interest by large life offices is agiven here, they will not give up this lucrative source of profit voluntarily.

Is a year long review with all the cost implications really necessary? It is a fact that a large number of people suffer a reduced level of income because they don't know how to access an alternative. Independent advice is essential here and this should be promoted, not a faffing around for a year and then suggesting the ineffective MAS might be a soultion!

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Sascha K

Feb 01, 2013 at 09:42

"I am sure Zurixh will deny the fact that they received commission many times that of ordinary IFA from L & G had no influence on their advice"

That's very honest of them.

Not with unkind regards,

The Double Negative Police

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Julian Stevens

Feb 01, 2013 at 09:48

The FSA could have addressed this a decade ago by stipulating that all providers must include with their pre-retirement packs issued to policyholders a separate, brightly coloured, possibly laminated, sheet highlighting in simple and straightforward terms the importance of seeking independent advice on the best terms on which to apply their fund.

"XYZ Life offers a range of options for vesting your pension fund/s but these should be assessed in the context of all the other options available to you in the open market, some of which may be more suitable for or advantageous to you".

The IFA community has known this for years and so surely must the regulator. Why, as has been asked so many times on so many other issues, has the FSA failed to act? How many more millions of pounds of OPM will be spent on this latest "probe" because, yet again, the FSA has failed to do its job properly?

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Mike WOI

Feb 01, 2013 at 09:53

What is the complaint here? If a customer saves with a company and has a relationship with that company for many years, reads the offer at retirement that they may shop around for annuity but decides not to and buys his pension annuity from said provider what is the complaint? surely freedom of choice is paramount and not a police state demanding that the best income today is the right choice. What happens if the annuity provide goes to the wall in 12 months because it was financially weak and was trying to buy market share by offering inflated annuity value? if any thing all companies should offer enhanced annuities if anything to provide their clients with health problems a better deal, that is a problem area. or have I not seen the light.

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John Burchett

Feb 01, 2013 at 10:19

Mike WOI, you make the assumption that the public understand what they are given to read. Most do not get past the gobbledygook of the first few paragraphs and those that do have no idea where to get advice.

Many insurance companies have made substantial sums from this inhouse annuity racket. It will be interesting to see how RDR impacts on this cosy corrupt arrangement.

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John Phillips

Feb 01, 2013 at 10:20

Forget about promoting the OMO there aren't enough IFA's left to deal with the enquiries and we can't afford to do the work involved for the fee that would be acceptable to the client. I must agree with Mike WOI, before long you will only be able to buy what the government have approved is good for you and fits their idea of best of breed.

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From yet another cynic

Feb 01, 2013 at 10:21

Double Neg Police. I agree a very stupid error, and may I congratulate you. You are the first policeman I have come across in the past three years who can read. :-)

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Duncan Carter 2

Feb 01, 2013 at 10:24

@ Mike WOI

There's nothing inherently wrong with your suggestion but it does presuppose that the client reads and understands the information provided as well as the long term implications of what they are doing. From hard and relatively long experience I know that this is very often, not the case.

Retirement option packs are large and unwieldy and whilst mentioned, the OMO and its benefits do not usually stand out. As an example of confusion, over the last couple of years I have seen several examples of people electing for trivial pensions when they are not entitled to select this option because of benefits elsewhere.

As for a police state and the possible failure of a new provider, we do have a very bureaucratic environment but it doesn't seem to be very effective at basic functions. Great in theory but then RBS goes bust etc. As for taking the deal from your existing provider, have a word with Eq Life Action Group.

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Feb 01, 2013 at 10:44

Why should the OMO stand out amongst the other options. Disclosure dictates the customer must be informed about all the options available to them which may or may not include deferral of retirement, trivial cash, immediate vesting, PCLS + residual pension, spouses options, guarantees, indexation and death benefits, open market option, drawdown, guaranteed annuity rates and transfer outs and I am sure several I have overlooked. And the pension could include some elements from schemes that have covered by legislation since the early 60's. The package also needs to incldue the actual figures for these options, the guides, the explanations, the option forms, the disclosure forms, the receiving scheme waiver forms and a return envelope.

Is it any wonder the postman has a hernia getting it through their letterbox. And then you find the retirement fund built up is £19,000 and any trip to an adviser will eat up maybe £500 of that in fees. Where in that lot should the OMO stand out. Then the poor customer looks on the internet to search for annuity providers to get a quote and receives over a million search results and, if really unlucky, chooses an American website to get a quote from and ends up even more confused (the word annuity was always more prevalent in the States).

Final salary was so easy, even at its most complex.

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Sascha K

Feb 01, 2013 at 12:17

@Mike WOI: If you decline to purchase an annuity with Provider B which would have paid you 10% more income or higher, and then Provider B goes to the wall, you have still screwed yourself over because if you had been with Provider B the FSCS would have compensated you at 90% of the annuity.

In any case, the idea that all the consumers who choose to buy a default annuity have done so after carefully reviewing the various credit ratings and deciding that their existing provider is more secure, is laughable.

And please don't claim that people feel some sort of relationship or brand loyalty to their insurer. Brand loyalty may cause someone to prefer Daz to Bold or a phone with rounded corners over one that is square. No-one, if they are in full possession of the facts, would choose a lower income for life out of 'loyalty'.

Default annuities are a rip-off that prey on confusion and inertia. They should be banned. At their chosen retirement date the pensioner should get a letter saying "Your pension fund is x, you may wish to now buy an annuity or other retirement product, here is how to find an IFA", and nothing else. No quotes for an inferior default annuity, no forms, nothing. If they genuinely want a lower annuity from the insurer with which they have a 'relationship', they can ask for one.

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lee rawding

Feb 01, 2013 at 13:35

I do hope they are looked at in some detail.

Providers that don't have a decent annuity offering for new clients that are still happy to take existing customer's monies by default should expect scrutiny.

Long overdue in my opinion.

Whilst they are at it they should take a look at the outfits that provide 'access' to OMO via a single provider tie.

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Feb 01, 2013 at 15:20

I agree with Sascha K - no annuity information should be provided. The problem is people think they have a pension pot which automatically turns into income when they hit 65. The idea that they may have some buying power is lost.

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Feb 01, 2013 at 15:31

There's far more than 1 problem with this. A bigger problem is that most pension pots are too small to warrant the payment of an advice charge to get the advice when most needed. And when the advisers have all washed their hands on the matter and the customer has no default annuity to fall back on, then what?

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Richard Hardy

Feb 01, 2013 at 16:27

This issue has been around for a long time. The FSA have had plenty time to sort it out however as with many issues they refrain from solving the problem in order that it can be revisited at a later date.

A simple solution would be to insist Clients approach an independent adviser so that all annuities must be advised.

The adviser could be paid by a method referred to as a commission with the regulator insisting all annuity providers have the same commission rate.

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Ian Lees

Feb 03, 2013 at 08:36

I transferred my Scottish Widows Final Salary scheme out in 1993 - as a result of Loss of Trust in the CEO, Chairman, Board of Directors and Chief Actuary ( Charles Thomson - who went on to Equitable Life - and his secretary alledegedly on thebeach near Ayr ). The Trustees of Scottish Widows were negligent and did not keep accurate records - when calculating the cash equivalent . When challenged the Trustees of Scottish Widows appointed Scottish Equitable now Aegon to calculate their cash equivalent - to delay, defer, frustrate and reduce the cash equivalent for . . . . pension beneficiaries like myself - whilst fiddling the books as the company was insolvent - and had to be purchased by Edinburgh bank TSB. Just like Libor fiddling these activites operate against the beneficiaries of pension pensions - whilst allowing the Direcotrs to take some £ 4 M in pension benenfits - at the expense of the rest e.g Mike DRoss

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Mr Balis

Feb 08, 2013 at 09:02

I also think there is no issue here!!

If you want to go direct you must read the leaflets, it's your responsibility!

Otherwise, just go with an IFA, you'll pay, but he/she will do the reading for you!

You can't penalise companies who have offering such as annuities for selling to direct client who have failed to read the instruction (mostly compliant with the regulators requirements).....

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