Pensioners who were mis-sold retirement annuities could be awarded compensation after the financial watchdog ordered a detailed examination of the issue.
The Financial Conduct Authority (FCA) is believed to have begun a “forensic” analysis of a large sample of sales by the main insurance firms since 2008. More than 600,000 people are believed to have been sold annuity contracts that failed to account for their health, while most were never told conditions such as diabetes and high blood pressure would enhance their payouts by at least 20 per cent.
In some cases, individuals who missed out face losses worth tens of thousands of pounds. Investigators from the FCA will examine the details of hundreds of annuity contracts issued by each firm to establish whether savers were given appropriate deals.
The City watchdog will also analyse telephone conversations between firms and their customers and paperwork sent to savers before they retired, according to The Daily Telegraph.
It comes after research suggested that 60 per cent of customers should have been entitled to “enhanced” annuities of up to £2,400 because their life expectancy was shorter due to smoking or ill-health. Someone with type 1 diabetes could have obtained an extra £2,817 a year.
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The FCA is believed to have met ministers and expressed concern that compensating thousands of savers could have a detrimental effect on insurers’ profits. Insurers have insisted that they adhered to the regulator’s requirements and there is only a possibility that a few customers were mis-sold contracts. The FCA declined to comment last night.