Annuity is taken by most working professionals approaching retirement to ensure a fixed income in exchange for their pension pot. However, this demographic is highly susceptible to annuities fraud from a plethora of malicious entities, including the very firms that sold them the annuities.
Prudential plc, a renowned British financial services and life insurance firm, was reportedly fined $24 million by the Financial Conduct Authority (FCA), UK’s financial regulatory authority, for failing to advise customers sold annuities over almost a decade.
The insurance giant had earlier offered £110 million to 17,240 clients who it sold annuities to without making any appropriate disclosures.
Mark Steward, Executive Director of enforcement & market oversight, FCA stated that Prudential failed while treating some of its clients, who could have received a better deal in the open market. Steward added that these are extremely serious breaches that have eventually harmed those customers.
Prudential apologized for the failings in its non-advised annuity business as well as for any detriment it caused its customers. The company stated that it is working hard to make things right and currently are on schedule to provide redress to a substantial majority of customers affected by October end.
Salesmen of Prudential failed to convey to the customers that they were eligible to gain a 10% higher income if they would have shopped around. They also did not tell the customers with health problems that they could possibly be entitled to enhanced annuity if they have a life expectancy that was shorter.
The insurance company didn’t challenge findings of the FCA, the penalty was discounted from total liability of £34.1 million.
Reports cite, FCA disclosed that bonuses worth approximately 40% of salary were given out to sales staff who bought the biggest pension pots. Various prizes that included spa breaks and foreign holidays, were also on offer for the employees.
The incentives brought a surge in risks of mis-selling as well as the possibility that the call handlers might give priority to their own financial profit while making a sale.
Prudential willingly agreed to carry out a previous business review of the non-advised annuity sales in an effort to identify customers who might be entitled to compensation.