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Standard Life, a FTSE 100 pension and investment group, has been ordered by the City watchdog to review its annuity sales to the public going back eight years.
The Financial Conduct Authority (FCA) has told the Edinburgh-based company, which does the bulk of its business through independent financial advisers (IFAs), to look at its sales of annuities direct to the public since July 2008.
This follows a report by the regulator on Friday which highlighted concerns about the lack of information call centres of a small number of firms were giving customers about enhanced annuities. These can offer better rates – and therefore bigger pensions – to people with health issues than standard annuities.
In a statement to the stock exchange yesterday Standard Life admitted it was one of the firms involved. It could face enforcement action by the regulator, which could include a fine, and may have to pay compensation to any customers who suffered a financial loss.
'At the request of the FCA, Standard Life will conduct a review of all non-advised annuity sales from July 2008 to identify whether our customers received sufficient information about enhanced annuities to make the right decisions about their purchase,' the company said.
'It is not yet possible to determine a reliable estimate of the quantum of any redress associated with this process,' it said, adding that it might be able to claim back the costs from its insurer.
On a poor day for the stock market and financial stocks, Standard Life shares yesterday fell 7p to close 2% lower at 330p. Today, with the FTSE rallying, they regained 4p to nearly 329p.
The FCA review looked at 1,200 files connected to non-advised annuity sales. It estimated 90,000 customers would be due redress following the providers' reviews. It estimated each customer had lost out between £120 and £240 a year.
Annuities, a form of life insurance contract that converts a pension pot into an annual income for life, have faced long-standing concerns over whether they offer good value for money. Annuity rates have tumbled as long-term interest rates have fallen and life expectancy has improved.
In addition to being expensive, pension providers have benefited from consumer apathy and ignorance. Before the last government's pension freedom reforms, most personal pension savers bought an annuity at retirement from the company with which they had held their policy, unaware of their right to shop around and get the best rate.