Financial Services Compensation Scheme  

FSCS to issue guidance for pension providers

FSCS to issue guidance for pension providers

The Financial Services Compensation Scheme is due to publish guidelines on how life and pension providers inform consumers about the protection to which they are entitled. 

In a statement today (April 11) the FSCS confirmed the guidance, which was devised by a working group of pension companies, would be published shortly and aims to create a consistent approach to disclosing pension protection information to clients. 

The update comes amidst new research from the FSCS which found 68 per cent of consumers think protection offered by the scheme for pensions is limited to £5,000.

The survey of 2,735 UK adults found 4 per cent of consumers were able to identify the correct level of protection and 26 per cent believed FSCS protection covered pension products in general. 

In reality the FSCS distinguishes between two types of pension product: insurance based and investment based.

If the pension claim relates to an annuity or life cover product provided by an insurance company that has failed, these would qualify as long-term insurance contracts and be protected up to 100 per cent with no upper limit.

If a claim involves the mis-selling of a pension product, the lifeboat treats this as investment advice and protects claims up to £85,000.

Mark Neale, chief executive of FSCS, warned the research confirmed the low levels of consumer awareness of pension protections.

He said: "Consumers can be confident that if they have a pension or an annuity, it is fully covered by FSCS should anything happen to their provider.

"Such protection is not the case for all financial products available to take you through retirement, so consumers should ensure that they are aware of the different protection limits." 

He added: "We are working with leading firms in the life and pensions sector to ensure that the industry agrees a consistent approach to disclosing pension protection information.

"This working group, launched 18 months ago, will shortly publish guidelines on how life and pension product providers inform consumers about FSCS." 

The survey was carried out by Ipsos Mori between October and January last year.

At the time of the research the FSCS offered £50,000 in protection, but this increased to £85,000 on April 1, 2019, for firms declared in default on or after that date. 

Previous research published in November found 29 per cent of those with a pension would invest more if they knew their fund was fully protected by the FSCS, investing an average of £1,493 more each year.