Following an investigation by the Financial Conduct Authority into annuity sales practices, it was revealed that almost 200,000 pensioners in poor health would be compensated by two of Britain’s biggest pension firms after being mis-sold annuities which were designed for healthy people. A customer with impaired health is more likely to die sooner than a healthy customer, and so would expect to have their pension pot shared over a shorter period of time, which in turn means their income should be higher. This is called an enhanced annuity.
Savers with health issues such as diabetes or angina missed out on a substantial portion of their retirement income as a result of the mis-selling. Annuity mis-selling occurs when a customer is sold an inappropriate financial product for their circumstances or they’re not given an appropriate amount of information before they purchase an annuity.
There is also the “Open Market Option” a phrase used to explain the process of shopping around for better rates as you would for other insurance products. An annuity has such an important impact on your life, it is incredibly important you are given the opportunity to search other providers for a better product to provide a larger income than your existing pension provider. When advising on pensions and annuities, regulated organisations must ensure they are clearly promoting the option of shopping around to for a better rate. Failure to do so is a breach of regulatory obligations.