Call handlers at the Prudential received spa breaks as prizes for selling annuities – but they were not treating some customers fairly.
Sales-linked incentives were offered to staff and managers prior to 2013, but they may not have told customers they could shop around for a better deal.
An annuity is a regular pension income bought only once, and for life.
The Prudential has been fined nearly £24m for failures when selling them to people who did not receive advice.
The company has apologised to those affected and says it is paying compensation, which could total £250m.
What is an annuity?
Individuals save into a pension during their working life and so build up a pension pot.
At some point during the first years of retirement, they might use the money that they have saved to buy an annuity from an insurance company.
This is a transaction that occurs once, and only once.
An annuity is an annual retirement income that is paid to them for the rest of their life.
The Financial Conduct Authority (FCA) said that between July 2008 and September 2017, Prudential’s so-called non-advised annuity business was focused on selling annuities directly to those saving for a pension with the company.
Firms are supposed to explain to customers that they might get a better rate if they shop around with other insurers and Prudential was aware that many customers could get a higher income in retirement by looking around, the FCA said.
The company did not make sure that customers were informed of that possibility, by failing to ensure call handlers’ documents were appropriate and not monitoring calls properly.
Before 2013, there were also bonuses of up to 40% and prizes of spa breaks and weekend holidays “which meant that call handlers might put their own financial interests ahead of ensuring fair customer outcomes”, the FCA said.
‘We are deeply sorry’
The company has now, so far, offered approximately £110m in compensation to 17,240 customers, including increases to some ongoing annuities.
That bill is estimated to rise to £250m, according to the FCA’s ruling.
A spokeswoman for the 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.”