FSA finds pension providers flouting rules

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A Financial Services Authority (FSA) probe has uncovered the failings in "wake up" letters from insurers to people approaching retirement, according to an update from the body's insurance sector team, seen by Reuters.

These letters are meant to highlight the "open market option" (OMO) - the ability to scour the market for the most competitive annuity contract, rather than buy it from the insurer with which the pension had been saved.

However, "almost 40 percent of the wake-up material reviewed does not meet regulatory requirements", the FSA document sent to insurance companies says.

The review involved 80 "wake-up" packs from 55 firms or group of firms, 11 of which were found in breach of the rules and 10 of which had substantial failings.

Material from 24 firms could be improved to meet a standard of good industry practice, the FSA found, while only 10 companies were found to produce letters that clearly set out the options, including the benefits of the OMO.

The review is related to the FSA's "treating customers fairly" (TCF) programme, with which financial services firms must comply by the end of this year.

Sarah Wilson, TCF director and insurance sector leader, writes in the update that she is disappointed with the results of the OMO review, adding that "a significant number of firms have improvements to make in this area if they are to meet the December 2008 TCF deadline".

Trade body the Association of British Insurers (ABI) said earlier this week that its members deliver "good rates for most customers - including many of those who do not change provider".

Some 85 percent of single life level annuity customers receive a rate that is at least 95 percent of the highest rate available, its research found.

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