An estimated 200,000 pensioners in poor health will be compensated by two of Britain's biggest pension firms after being mis-sold annuities which were designed for healthy people.
Standard Life and Prudential have today released statements admitting potential mis-selling in which they confirmed they will be writing to customers who were sold the wrong pension.
The move by the two firms is a major victory for the Daily Telegraph which has for years warned that people were being sold the wrong annuities.
This newspaper was the first to break the news of a mis-selling inquiry and formal compensation scheme by City watchdogs in 2015. Last October the Financial Conduct Authority said it was launching a formal redress scheme to compensate victims, however it refrained from naming and shaming the companies responsible.
At the time the regulator estimated the average affected customer, with a pot worth £25,000, would have lost out on between £120 and £240 in annual payments. Over a typical 25-year retirement this equates to £6,000.
A spokesman for the regulator declined to comment on today's announcement from Standard Life and Prudential.
Savers with health issues such as diabetes or angina, or even a daily smoking habit, have missed out on a significant chunk of their retirement income and will be paid hundreds or even thousands of pounds in redress.
Annuity rates can be boosted for a range of conditions from high blood pressure, which may result in a 2 per cent lift to more serious illnesses such as cancer or strokes which can add 40 or even 50 per cent to the value of payments.
Unlike the PPI scandal, in which dead victims did not receive compensation, a high proportion of annuity mis-selling victims are expected to have since died, meaning companies will be forced to track down deceased clients’ families and compensate them.
Standard Life has set aside £175m in anticipation of payouts, but Tom McPhail, a retirement expert at Hargreaves Lansdown, said Prudential sold up to four times more annuities than Standard.
That suggests it could be on the hook for compensation to customers and their families of over half a billion pounds.
Five other annuity companies were included in the FCA's review, so customers of firms other than Prudential and Standard Life may also receive compensation in time.
The study - which aimed to find out if companies failed to alert their own customers to better deals they may have qualified for because of health conditions - covered two thirds of the market.