Six insurers including Prudential and Old Mutual face potential fines and redress payments after the Financial Conduct Authority launched an investigation into whether they unfairly charged fees on pensions and other products.
The FCA’s enforcement division will investigate the companies after a two-year review found examples of customers who had not been treated fairly.
The six groups in the spotlight are Abbey Life, Countrywide, which is owned by Chesnara, Old Mutual, Police Mutual, Prudential and Scottish Widows, which is part of Lloyds bank. Abbey Life and Old Mutual will be subject to a broader investigation because of initial indications that they breached other FCA requirements.
The FCA said that it could extend its formal enforcement investigation to other companies. Tracey McDermott, acting FCA chief executive, said: “Given the long-term nature of closed-book products it is vital that customers are treated fairly and given the right information . . . to help them make important financial decisions.”
In March 2014 the FCA launched a review of pension savings, life insurance policies and endowment bonds from before 2000 within funds that are closed to new business. This group has been more badly served than people with newer policies, the FCA said.
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The review also covers paid-up fees which some companies levy when customers stop making contributions but keep their money with a provider.
When the review was announced, shares in big insurers fell after a briefing by the FCA led to an erroneous report suggesting that exit fees could be banned and 30 million policies dating back to the 1970s reviewed.
The FCA was criticised over the affair while all parties played down the chance that exit fees would be scrapped. Yesterday the regulator again raised the prospect of a complete ban, saying it would discuss with the industry “a voluntary solution to capping or removing exit and/or paid-up charges”.
Scottish Widows said that it would remove all exit fees levied on its workplace pension savers. Standard Life has put a 5 per cent cap on exit penalties for thousands of pension customers.
The FCA has been given the power to introduce a cap on exit fees on the policies of people who are 55 or over who are eligible to use new pensions freedoms to cash in their pension pots. The regulator will consult on the matter before deciding on the level of the cap. The FCA has looked at 9.4 million customers of 11 companies. Most policies did not have exit fees, it said. Older policies were more problematic because some initially had other benefits, such as guaranteed annuity rates. In many cases those features had been stopped but exit fees remained.
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Nicholas Henderson, a partner at KPMG, said: “There are examples of firms who have grasped the nettle over the last 18 months and have embraced the transition to a more customer centric, simple and transparent, digitally enabled business model. Others are yet to begin what could prove to be a revolutionary change.”