Financial protection awareness impacts pension saving decisions

21 March 2018

Pension savers’ appetite for risk alters depending on their knowledge of the Financial Services Compensation Scheme (FSCS) and the protections it provides.

According to research conducted by the FSCS, almost two-thirds (62%) of people surveyed said that knowledge of the scheme would influence the financial products they use in retirement.

Those who were aware of the FSCS were also less inclined to buy riskier products and more inclined to opt for those the scheme protects.

In addition, people who were aware of the FSCS or who thought it important, were found to be more likely to take advice, although they were less likely to question the price of that advice.

As a result, the FSCS is calling for more to be done to promote awareness of what the scheme covers – which varies by product.

For instance, savings accounts and Cash Isas are protected up to £85,000 per financial institution, while investment products are protected up to £50,000 if the provider of the product goes bust. If money is lost due to a collapse in value, then the saver is only protected if they received bad investment advice or if a firm has poorly managed their money.

With annuities and pension pots managed under a life insurance contract, 100% of your pot is protected if something happens to the provider. For more information on how the FSCS works, read our guide.

‘It is key that providers and advisers make retirees aware of FSCS protection’

The FSCS also found significant reliance on financial advisers when it came to choosing retirement products – 64% of women and 54% of men used an Independent Financial Adviser (IFA) when looking for a retirement product with their pension pot.

But the FSCS mystery shopper research conducted with financial advisers found that 61% of the ‘shoppers’ had to actively prompt advisers for information about the protection scheme.

Mark Neale, FSCS chief executive comments: “It is clear that greater awareness of the protection that FSCS provides to retirees has an impact on product choice and on the risks they are prepared to take when planning their finances. It is key that providers and advisers make retirees aware of FSCS protection.

“I am therefore pleased to announce that a group representing leading industry firms has agreed to work together to look at developing an industry best practice standard for disclosure, which will offer a benchmark on how life and pensions product providers convey information about FSCS to consumers.

“This will not be a quick fix but we are confident that, just as we have in the deposit industry, we will arrive at a disclosure standard which will significantly improve consumer understanding and make it easier for providers to communicate where FSCS’s guarantees apply to retirement products.”

‘Risk is the main barrier to investing’

Jane Warren, chief executive of Investec Click & Invest comments: “The findings from the FSCS into the connection between people buying riskier products and having knowledge of the scheme is no surprise as we know from our own research that risk is the main barrier to people investing.

“We found that nearly a third (27%) of people said they would not put money into investments because they were worried about risk. Over 55% also said they associate the investment industry with being ‘risky’, therefore it is our job as an industry to make sure that people feel secure in the provider, the products and the knowledge they are getting by educating them from the get go.  All firms should ensure people receive clear, accurate and transparent information on all of their financial products. This enables people to feel they can have trust and confidence in the industry."

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