The Financial Conduct Authority has fined Standard Life Assurance Limited (SLAL) nearly £31m ($38.7m, €34.5m) for failures related to the non-advised sale of annuities.
The business offered staff large financial incentives to sell annuities, which put their financial interests ahead of the customers’.
But it failed to put in place adequate controls to monitor the quality of the calls between its staff and non-advised customers.
Between July 2008 and 31 May 2016, SLAL’s business activities included the non-advised sale of annuities to its existing pension holders.
During that time, nearly 22% of call handlers received more than 100% of their basic salary in bonus payments.
The peak of the misconduct occurred between 2011 and 2013 when Standard Life had a sales strategy known as the ‘annuities challenge’.
One aim was to increase profits on annuity sales by offering an incentive to existing customers choosing to consolidate their Standard Life pension pot with external funds into a Standard Life annuity.
In 2011, annuity sales made up 50% of Standard Life’s UK business.
Past business review
The fine, which was reduced by 30% after SLAL agreed to resolve the matter, was expected.
The company was sold to Phoenix Group in August 2018 and the consolidator confirmed in its annual results, published on 5 March 2019, that Standard Life had agreed with the FCA to “undertake a past business review”.
“On acquisition […], obligations arising as a result of past practices […] were assessed. As a result, it was determined appropriate to recognise a provision of £225m in respect of [Standard Life Assurance] on a fair value basis in this regard.”
If the total cost surpasses £225m, however, Phoenix can recover up to £150m under a “deed of indemnity” which it secured during the acquisition and that lasts for up to four years.
Susan McInnes, chief executive of SLAL and Phoenix Group director, Open Business, commented on the penalty: “While this is an historic issue and one we were aware of when we acquired Standard Life Assurance Limited, we would like to apologise to affected customers, all of whom we have already been in contact with as part of the programme of customer redress.”
According to the FCA’s final notice, SLAL had paid around £25.3m to 15,302 customers as at 31 May 2019.
It is currently reviewing around 81,000 sales where customers may have been entitled to an enhanced annuity.
Total redress, covering back payments and interest, is expected to be approximately £61.2m.
“We have also reviewed and updated our telephone practices as part of this process,” McInnes added.
“Whenever we get things wrong, we seek to learn from our mistakes and are absolutely focused on putting things right. Our remediation programme for affected customers is progressing well and we expect it to be completed by the end of the year.”
Mark Steward, executive director of enforcement and market oversight at the FCA, said: “Standard Life Assurance Limited’s controls needed to place fairness to customers at their heart.
“Here, the financial incentives available to staff for selling non-advised annuities by telephone created conflicts which led to unfair outcomes for some customers.
“Firms must have controls in place to ensure they are prioritising fairness to customers.”