FSA finds pension providers flouting rules

By Jennifer Hill, Personal Finance Correspondent

LONDON (Reuters) - Insurance companies are failing to comply with rules designed to ensure consumers get the best deal when they retire, the City watchdog has found.

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".