Annuity customers 'must be treated fairly'

Annuity firms must make improvements to ensure pensions customers are treated fairly, the financial regulator stated today.

The Financial Services Authority (FSA) has found many firms in the annuity market need to make improvements.

Over 60 per cent of annuity firms assessed provided clear information to customers approaching retirement about their options – in so called 'wake-up' packs.

However, the watchdog found a significant minority of these firms provide material that failed to meet its requirements.

Under the Open Market Option (OMO), those approaching retirement and choose to buy an annuity – which provides their pension income – from any firm on the market, and not just their existing pension provider.

However, many people are failing to shop around for annuities and could be losing income in retirement.

The review also found delays in 60 per cent of annuity cases being switched between companies it reviewed – mainly caused by confusion over complex forms.

Sarah Wilson, insurance sector leader at the FSA, said: "The decision on whether to buy an annuity from a current provider or to switch to another insurer on the open market can influence an individual’s lifetime income.

"Poor communications from insurers may result in people making poor decisions or failing to take any action to maximise their retirement income. At the same time, if a consumer decides to exercise the open market option, they can suffer if fund transfer does not happen in a timely manner."

She added: “The way that firms deal with pension policyholders provides an indication of how they treat their customers more generally, and we will be looking for firms to demonstrate good practice in this area."

The FSA is warning if no improvements are made in the annuities market, then it will take direct action – setting no rules and obligations for firms.