Insurance giant Prudential is fined £24million for ripping off customers
Insurance giant Prudential is fined £24million for ripping off customers while handing out huge bonuses to fat cat bosses
Insurance firm Prudential has been fined £24million for mis-selling annuities
A giant insurance firm was fined £24million yesterday for a mis-selling scandal fuelled by staff vying for huge bonuses.
While giving loyal customers dismal returns on their savings, Prudential handed out commission payments worth up to 40 per cent of salary.
It now faces a compensation bill of more than £250million after potentially ripping off tens of thousands of investors. It has already paid out £110million to more than 17,000 people.
The scandal surrounded the sale of annuities to those approaching retirement. Annuities pay a guaranteed income in retirement in exchange for your pension pot.
It took me five years to get my money
David Burnett is finally receiving the pension he deserves after a five-year fight with Prudential.
When the 71-year-old retired in 2012 he could have bought an enhanced annuity from another firm that paid 20 per cent more than Prudential’s standard deal.
Prudential’s salesman failed to tell him about the better deal and he was left with £938 a year.
Mr Burnett’s early complaints about his raw deal fell on deaf ears until Money Mail published a template letter to help readers claim compensation for mis-sold annuities. It led in late 2017 to his payments being lifted to £1,248 a year with £1,751 in compensation.
The former forklift driver, from Enfield in north London, said: ‘I couldn’t believe it when I found out I could have got a bigger pension.’
He said it was wrong that sales staff may have been motivated by bonuses and holiday prizes.
The Financial Conduct Authority said there were systematic weaknesses in Prudential’s practices that cost pensioners thousands of pounds – while the firm made £6billion.
Salesmen failed to tell customers that they could get a 10 per cent bigger income if they shopped around. They also failed to tell those with health problems that they could be entitled to an ‘enhanced’ annuity if they had a shorter life expectancy. The FCA said telesales staff ‘pro-actively’ targeted the pensioners with the biggest pots after being offered huge rewards for sealing deals.
In a report published yesterday, the authority revealed that bonuses of more than 40 per cent of salary were paid to sales staff who bought up the largest pension pots. Prizes, including foreign holidays and spa breaks, were on offer.
The incentives increased the risk of mis-selling and the chance that call handlers might ‘prioritise their own financial gain when making a sale’.
James Daley, of the campaign group Fairer Finance, said: ‘Almost all bad practice in financial services has been driven by poorly constructed incentive schemes – whether at executive level or on the frontline. If you incentivise staff to sell lots of products, it takes their eye off whether or not the products are suitable for the customer.
Prudential was a respectful company. It is a surprise they were indulging in these tactics. It makes you wonder how many other firms are still doing this.’
Justin Modray, of Candid Financial Advice, said: ‘Almost all instances of financial services mis-selling occur through greed, with this latest example appearing no exception. I’m very surprised no one at Prudential stopped to think that dangling juicy carrots, including bonuses and holidays, in front of call centre staff to sell annuities might lead to them cutting corners. Heads should roll, starting at the top.’
Prudential was fined £23,875,000 for its annuities sales practice between July 2008 and September 2017.
It accepted the regulator’s findings and qualified for a 30 per cent discount from a potential £34million penalty. It has contacted most of the potentially affected customers, and is reviewing 183,000 cases where clients may have been entitled to enhanced payouts.
Standard Life Assurance was fined £31million in July after toxic ‘Mad March’ bonuses for staff helped trigger a similar mis-selling scandal.
A Prudential spokesman said last night: ‘We are working hard to put this right. The review of all relevant policies is ongoing – any customer within the scope will have been contacted or will be contacted directly.’