The FCA has fined Prudential over £23m for failures relating to non-advised annuities sales by its direct sales force which was incentivised through big bonuses and spa breaks. It has been forced to pay £110m in redress.
Between July 2008 and September 2017, Prudential’s non-advised annuity business focused on selling annuities directly to existing Prudential pension holders. The FCA says Prudential was aware that many customers could get a higher income in retirement by shopping around on the open market, but failed to do so. Prudential also failed to take reasonable care to organise and control its affairs in breach of its obligation to ensure fair treatment of customers, and also failed to ensure that documentation used by call handlers was appropriate and failed to monitor calls with customers properly.
Prudential did not dispute the FCA’s findings and qualified for a 30 per cent discount. Were it not for this discount the FCA would have imposed a fine of £34,107,200.
Prudential voluntarily agreed to conduct a past business review of non-advised annuity sales in order to identify any customers who may be entitled to redress as a result of the firm’s failures. As of 19 September 2019, Prudential has offered approximately £110m in redress to 17,240 customers (including ongoing annuity uplifts).
Prudential has already contacted the vast majority of potentially affected customers as part of its continuing past business review.
As customers approached retirement Prudential wrote to them enclosing information about their retirement options. However, Prudential also communicated with customers by telephone. The documentation provided to call handlers created 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. Prudential also failed to monitor these calls adequately.
Prior to 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. Call handlers were incentivised by the possibility of earning an additional 37 per cent on top of their base salary and winning prizes such as spa breaks or weekend holidays.
FCA executive director of enforcement and market oversight Mark Steward says: “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 on redress and today’s financial penalty reinforces the cardinal obligation of fairness that firms owe to customers.”