Pension firms misleading customers, says watchdog

FCA describes 'clear evidence of mis-selling'

Updated: 
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Many pension providers are engaging in dodgy sales tactics and failing to tell savers about the best deals, according to the Financial Conduct Authority (FCA).

As a result, it says, fewer than half of people end up with the deal that's best for them, thanks to "clear evidence of mis-selling".

According to the FCA, customers receiving so-called "wake-up packs" from pension companies are often discouraged from shopping around, for example by stressing the cost of commission fees.
This, says the FCA, is misleading, as the money saved by shopping around nearly always outweighs the extra cost.

Nor, often, are customers being told about "enhanced annuities" available from competitors which offer better deals to people with a shorter life expectancy. This is something that Aviva recently admitted to having done - although only in 250 cases.

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Some pension providers are sending out documents that don't make it clear that the customer has a guaranteed annuity rate, or that fail to let them know that they need to sign up to a deal within a particular timeframe.

Sales staff are often poorly trained, working from scripts and given financial incentives to sell as many annuities as possible. Many staff blind customers with science by using confusing and highly-technical scripts.

As a result, the FCA is recommending that providers should be forced to tell customers how their quote compares with the competition.

"The Budget reforms are a game changer for the retirement income market. People will be given more choice and many will want some support to ensure they make the right decisions for them," says Christopher Woolard, director of policy, risk and research at the FCA.

"We want to see firms improving the way they communicate with their customers. In order for the pension reforms to work and for people to have trust and confidence in the products they are buying, firms need to act now."

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Since the government announced changes to the pension rules that mean savers no longer need to buy an annuity, there's been a big decline in annuity sales. But the FCA said that for people with average-sized pension pots, they still provide good value for money - just as long as people do shop around.

"Consumers have been repeatedly let down by the pensions industry, with years wiped off people's hard-earned savings, so it's welcome to see the FCA working with the industry to clean up mistakes from the past," says Which? executive director Richard Lloyd.

"The regulator's proposals to ensure consumers have better information when they make big decisions about their income at retirement are sensible. But action is long overdue and the regulator and industry must now quickly put in place changes to ensure retirement products offer true value for money."

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