Controlled research of over 2,000 people carried out by Oxera and the Centre for Experimental Social Sciences (CESS), found a clear correlation between the choices people make and their knowledge of the FSCS. Those who are aware of the FSCS or think it is important are more likely to choose retirement income products that are protected by it. They are also more likely to take financial advice and less likely to question the cost of it.
The findings have led to the FSCS establishing an industry best practice group to create a common approach to disclosure of the existence of the body and the protections it gives.
The research found that when presented with information about FSCS at the point of decision, fewer people choose to withdraw their pension pot to invest it in property and stocks and shares after considering their risk profile.
Those who scored higher in the experiment comprehension questions were more likely to pick an income drawdown and take (and pay for) advice. People who are more engaged in their pension choices are more likely to choose an income drawdown.
An Ipsos MORI mystery shopping exercise of advisers’ and firms’ websites giving information on pensions, investments and insurance found that customers are being given inconsistent messages across all three product types. The research found that there are “a lot of cases” where limits have been incorrectly quoted, or where advisers appear to avoid the conversation. The research found 61 per cent of mystery shoppers had to proactively prompt the firm or adviser for information about FSCS. Overall awareness score on the compensation limit for pensions was only 23 per cent.
FSCS chief executive Mark Neale says: “Pension freedoms is a game changer, but people need to understand that the FSCS is there and the different levels of protection it gives for different products. This research shows that awareness of the FSCS makes people think twice about the decisions they make with their pension products.
“The report we have published today should be read by everyone involved in the advisory and wider life and pensions sectors. 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.”