Prudential call handlers were offered prizes of spa breaks or weekend holidays as sales incentives, according to the City regulator, which has fined it nearly £24 million for not treating some annuity customers fairly.
The fine of £23,875,000 imposed on the Prudential Assurance Company Limited relates to sales of annuities where people did not receive advice.
Annuities give people a fixed retirement income to live on, and because rates vary it is important to shop around to get the best deal.
Imposing the fine, the Financial Conduct Authority (FCA) said Prudential had failed to ensure that customers were consistently informed that they may get a better deal if they shopped around.
We are deeply sorry for the historic failings in our non-advised annuity business and any detriment this has caused our customersPrudential statement
Between July 2008 and September 2017, Prudential’s non-advised annuity business had focused on selling annuities directly to existing Prudential pension holders.
Firms are required to explain to customers that they may get a better rate if they shop around on the open market and Prudential was aware that many customers could get a higher income in retirement by shopping around, the FCA said.
The regulator said that before 2013, the risks created by a lack of appropriate systems and controls were increased by sales-linked incentives for call handlers and their managers which meant that call handlers might put their own financial interests ahead of ensuring fair customer outcomes.
It said: “Call handlers were incentivised by the possibility of earning an additional 37% on top of their base salary and winning prizes such as spa breaks or weekend holidays.”
Prudential has already contacted the vast majority of potentially affected customers as part of a past business review, the regulator said.
As of September 19, Prudential has offered around £110 million in redress to 17,240 customers, including ongoing annuity uplifts, the FCA said.
Prudential failed to ensure documents used by call handlers was appropriate and did not monitor calls with customers properly.
The FCA said there was a “significant risk” that call handlers would fail to mention the open market option or make statements during calls which could discourage a customer from shopping around for a better deal.
Mark Steward, executive director of enforcement and market oversight at the FCA, said: “Prudential failed to treat some of its customers, who could have secured a better deal on the open market, fairly.
“These are very serious breaches that caused harm to those customers.
“Prudential is now rightly focused on redress and today’s financial penalty reinforces the cardinal obligation of fairness that firms owe to customers.”
The FCA said customers need accurate information when choosing an annuity, because it is a complex financial product and can affect the customer, and their dependants, for life.
This is especially so for non-advised sales, where the customer selects the annuity based on factual information and does not receive financial advice.
People with conditions which may shorten their lifespan may be eligible for enhanced annuities, which tend to have better rates.
The regulator said firms need to provide clear, fair and not misleading information about enhanced annuities to help the customer make an informed decision about which product to buy.
Prudential did not dispute the FCA’s findings and it qualified for a 30% discount.
Were it not for the discount the FCA would have imposed a fine of £34,107,200.
A statement from Prudential said: “We are deeply sorry for the historic failings in our non-advised annuity business and any detriment this has caused our customers.
“We are working hard to put this right and are on schedule to offer redress to the vast majority of affected customers by the end of October this year.
“Our systems and controls have been significantly strengthened in the past two years through a substantial investment in our business.
“Prudential no longer sells non-advised annuities to most of its customers, following a decision in February 2017 to refer customers to a panel of external providers rather than writing new annuity business.”