On Saturday 28 March, the Telegraph ran a story: “Is this the worst pension mis-selling case ever? Aviva knew this customer was ill”.
The story, by Katie Morley, highlights the case of a nurse who was in ill health and did not receive the appropriate health enhancement for her annuity. She subsequently complained to Aviva, and ultimately, with the Telegraph’s help, has received compensation.
The compensation looks to be retrospective with additional income being paid for annuity income paid out so far and an increase for the future annuity income. The additional monies are based on the difference she should have received if her actual health had been taken into account at the time of the annuity sale.
Consumers not receiving the appropriate annuity, due to an inadequate health assessment, is of no surprise to many in the industry. What is, I think, a precedent, is that the claim was based on Aviva already having the health information on file. Further, that this information was held and collected for a different financial product 3 years previously to the annuity sale. This has massive implications and not only for annuities and providers but also for the annuity sale process.
We don’t know the exact details of the sale process, and I suspect that the sale process was not greatly different to that undertaken by many others at the time. My suspicion is that although Aviva is the party in this case, it could have been many other providers or advisors. My suspicion would be that the attempt to obtain good medical information at the time was inadequate, and again this was not uncommon and indeed is unfortunately still ongoing today. We know that around 70% of consumers qualify for an enhanced annuity when their health is properly assessed, and yet a far lower proportion of consumers are receiving the incomes they deserve.
Many sales processes rely on asking the consumer some health questions, and rely on the answers with no checking, validation, or cross-checking against previous records. The information is simply passed onto the provider. This is in stark contrast to how we collect financial information. Typically, we have trained advisors to explain the questions, validate the answers and in most advised cases to cross-check against previous financial information on file.
What this case is highlighting is that if the seller has the information on file, or does not undertake a proper health assessment, then it is deemed mis-selling. In this case, the sales team were part of a provider, and the provider had material health information on file for a different financial product processed some 3 years previously. This will be typical across providers whose systems are organised around products, rather than consumers.
I doubt whether many advisors’ sales processes retain the health information on file – they may collect it, but they may pass it onto a provider for a life insurance or other quote, but not retain it. In such circumstances, not only are they not using this information for their customer, but they will have no information on file to defend such a claim from a disgruntled annuitant.
Many advisors will cite that by sending the annuity application to a whole-of-market application process they ensure they receive the best price and that single sales from providers do not do this. This was certainly true up until recent times, but the truth now is, if the medical information is not supplied to any of the providers because it is not collected in the first place, then the price received from any provider will not reflect what the consumer could receive.
The negative publicity around annuities, and the potential secondary annuity market, is in my opinion going to reveal more disgruntled annuitants, who received a poor deal. Further annuity rates are going to remain low in line with investment returns. Any annuity sales process should be concerned at this precedent. The conclusions are:
- Ensure proper medical assessments are undertaken.
- Keep the medical assessment on file.
- Obtain the best annuity rates.