Consumer engagement with pensions & SIPPs

• Context
• The study
• Key findings
• Points to consider

Context

One of the key challenges of the 2020s is that consumers are required to make more sophisticated financial decisions, particularly around their retirement savings. While few people know that the Financial Services Compensation Scheme (FSCS) can protect UK-regulated pensions and investments, those consumers who do approach FSCS with a pension-related claim are often close to retirement and have little time to recoup their losses. Many claims are also above the FSCS limit of £85,000. It is important to understand the causes of the harm people experience to their pensions, including Self-invested Personal Pensions (SIPPs).

The study

The study involved a survey of 2,000 adults from across the UK. The survey was run between 16 and 23 December 2021 on behalf of FSCS , the UK’s statutory compensation scheme of last resort for customers of authorised financial institutions. Among those surveyed, 1,454 had at least one pension, excluding the State Pension and the findings are based mostly on this subset.

The survey was commissioned in order to understand the causes of the pension harms people experience, boost awareness of FSCS protection and identify how FSCS can support consumers to make the right decisions about their pensions. It aimed to explore: what types of pensions people hold and why; awareness of FSCS protection for their pensions; and why consumers do not check their pensions for FSCS protection.

Key findings

• Levels of pension holding: 73% said they had at least one pension.
  • Women (68%) were less likely than men (78%) to have a pension.
• Types of pension held: Among those with a pension, 46% had defined contribution (DC) products and 37% had defined benefit (DB) pensions schemes.
  • 24% said they had invested in a SIPP (with an average of over £300,000 invested per person).
  • Women (15%) were less likely than men (44%) to have a SIPP.
  • The three most common reasons given among SIPP investors related to flexibility of investment (44%), tax efficiency (40%) and higher returns (37%).
• Awareness of and checking FSCS protection: 54% of respondents said they had checked their pension(s) for FSCS protection.
  • 46% said all their pensions were protected, rising to 61% among those with SIPPs.
  • Women (49%) were more likely than men (34%) to say they had checked their pension(s) for FSCS protection.
  • 55% of those who had not checked said this was because they did not know how do, while 23% said they did not know what FSCS protection was.

Points to consider

• Methodological strengths/weaknesses: The authors note that respondents may misreport the type of product they hold and suspect that respondents may over-report FSCS protection, given the complexities within the sector.
  • The report gives no indication about the expected representativeness of the sample, weighting of the sample to make it more representative or statistical significance testing. This means that generalisation of the sample findings to the population should only be undertaken with caution.
  • The survey was undertaken in the week before Christmas 2021. The findings should therefore be treated with further caution, as response is likely to have been lower than at other times of year and, crucially, biased in unobservable ways. This is likely to have been compounded by the particular travel and holiday uncertainties at the time due to Covid-19 and the speculated restrictions at the time.
• Generalisability/ transferability: It is not clear from the report what age groups were represented by the sample of UK adults.
• Relevance: The study will be of use to anyone with an interest in consumers’ engagement/understanding of pensions and SIPPs.