In 1993, British Airways had to pay compensation and legal costs of £3m after running a smear campaign against Richard Branson and Virgin Airlines.
One senior executive at BA was asked if the lawsuit had damaged BA’s image. He said the information he was getting was not particularly negative "but then nobody ever tells you when you’re the ugliest girl in the playground.”
If it’s true that the BA executive was being sheltered from harsh reality, well, it appears that today, pensions savers are in the same boat – apparently many are getting the 'mushroom treatment' (they keep you in the dark and feed you bull****) from their pensions company.
The Financial Conduct Authority has found that up to 90,000 customers could be due for compensation from pension companies who failed to give them the full facts about buying an annuity.
Specifically, they failed to inform them that they could be eligible for the more generous ‘enhanced annuity’ which would have given them significantly more income from their pension.
The investigation focuses on ‘non-advised’ sales, where customers did not have advice from a qualified financial adviser.
The FCA looked at 1200 non-advised sales at seven large providers, who between them account for two-thirds of annuities sold in the UK.
The good news was that the FCA found “no evidence of an industry-wide or systemic failure to provide customers with sufficient information about enhanced annuities.”
But every silver lining has a cloud, and now the regulator’s enforcement team is looking more closely at “a small number” of the firms, after concerns were raised.
An enhanced annuity is one which pays out more to those with lifestyle issues that could shorten their lifespan, in comparison to a person with a healthy lifestyle.
Smokers are particularly likely to qualify for an enhanced annuity, but there are a number of other conditions as well, including obesity, high blood pressure, chronic asthma, diabetes, and previous heart attack.
An enhanced annuity can pay 10-30 per cent more than a standard annuity, which is why the FCA is aware that pension companies don’t always knock themselves out checking if you are eligible.
In fact, the Association of British Insurers found that just 16 per cent of people who were potentially eligible for an enhanced annuity actually ended up getting one.
Incidentally, people in extreme ill-health may qualify for even higher pension payments by investigating their eligibility for an ‘impaired annuity.’
In the current investigation, the FCA found that some providers did not even mention enhanced annuities when speaking to customers, and others did not tell customers they could get a higher income by shopping around.
When clear messages about enhanced annuities were given, call handlers underplayed the level of increase the consumer could get by shopping around.
The FCA says that, particularly when conversations took place over the phone, customers who would have been eligible for enhanced rates ended up with a less generous standard annuity.
The latest on this is that last week, one of the very largest and best-known annuity providers was requested by the FCA to take another look at its non-advised annuity sales since 2008, “to identify whether our customers received sufficient information about enhanced annuities to make the right decisions about their purchase.”
Analysts have now predicted the provider could be looking at a compensation bill of £125m.
Meanwhile a second, equally well-known company may have to pay out £200m for the same thing.
So what nugget of wisdom can we draw from all of this?
The trick is not to make such important decisions without advice. An independent adviser can not only check your eligibility for a more generous deal than the standard annuity, but can also ‘shop around’ various companies, to ensure your annuity deal will be ‘all that it can be’!
:: Michael Kennedy is an independent financial adviser and pensions specialist, and can be contacted on 028 71886005
