The U.K.’s financial services regulator has hit Prudential with a £23.8 million (U.S. $26.4 million) fine in a misselling scandal that put the pension pots of over 17,000 customers at “significant risk.”
Between July 2008 and September 2017, Prudential focused on selling annuities directly to existing pension holders who were approaching retirement.
An annuity is a retirement income product that can be bought with a customer’s pension pot and pays them a regular income in return. The Financial Conduct Authority regards them as a “complex financial product.”
Prudential targeted pension holders first by sending out letters, followed up later by phone calls to push “non-advised” sales, whereby customers are not given financial advice but rather the “full facts” upon which they can base an investment decision themselves.
The firm, however, did not check the information call handlers gave customers was sufficiently comprehensive or objective or that the right kind of annuity was being offered to them, causing “significant risks” of misselling.
The company also did not have appropriate systems, policies, and controls in place to ensure customers were properly told they could get a better rate for the same—or better—products if they shopped around on the open market, as required under FCA rules.
“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 focussed [sic] on redress and today’s financial penalty reinforces the cardinal obligation of fairness that firms owe to customers.”
Mark Steward, Executive Director of Enforcement and Market Oversight, FCA
The FCA also found strong evidence to suggest call handlers “might have put their own financial interests ahead of ensuring fair customer outcomes.” Prior to 2013, call handlers were incentivized to push annuity sales with the chance of earning an additional 37 percent on top of their base salary (bonuses for sales managers were even higher), as well as the potential to win prizes such as spa breaks or weekend holidays.
Mark Steward, the FCA’s executive director of enforcement and market oversight, said in a statement: “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 focussed [sic] on redress and today’s financial penalty reinforces the cardinal obligation of fairness that firms owe to customers.”
Prudential did not dispute the FCA’s findings and so qualified for a 30 percent discount from the original £34.1 million (U.S. $37.9 million) fine. The firm also voluntarily agreed to conduct a past business review of non-advised annuity sales to help identify any customers who may be entitled to financial redress as a result of the firm’s failures.
As of Sept. 19, Prudential has so far offered around £110 million (U.S. $122.2 million) in compensation to 17,240 customers (including ongoing annuity uplifts).
In a statement, the firm said: “The review of relevant policies is ongoing and we are targeting to have offer letters to all affected customers by the end of October 2019.”