The Financial Conduct Authority (FCA) has been concerned about some serious flaws in the sales of annuities to millions of lifelong savers.

Until recently, the purchase of annuity was all but compulsory, with millions of these financial products having been sold. The more recent changes to pension rules have meant that annuity sales have dropped.

 

Part of the problem with the selling of these products has been the fact that the insurance companies which normally sell the investment product are also typically the provider of the investment account where a saver's pension pot is built up during their working life in the form of monthly contributions. This presents a conflict of interest with the almost inevitable consequence that many highly profitable annuities have been sold to the same saver.

Once an annuity is bought there is no reverse gear. The agreement is set and so if a pension pot has been used to purchase a poor-value annuity, the saver will suffer a reduced income for life.

In recent years a series of rules were introduced aiming to ensure that when savers made the crucial decision to swap their pension pot for an annuity, they did so with enough information at hand to guide their choice. This included information that would alert them to the possibility that by using another provider they could possibly, if not probably, get a far higher income for life.

It is these rules which the FCA claims were flouted, on a major scale, by insurers.

Any compensation would normally have to take into account the reality that the affected savers would have lost out on an income payable over a lifetime which would naturally be worth many thousands of pounds.