Understanding of FSCS protection

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

Context

Although many adults are aware that the Financial Services Compensation Scheme (FSCS) protects their money in banks, building societies and credit unions, fewer know that FSCS can protect other UK-regulated financial products such as pensions, investments, insurance, funeral plans and financial advice. Awareness of FSCS protection helps to inform people’s choices by increasing their confidence in buying protected services and understanding the risks of unregulated products. This is particularly important in the context of a cost-of-living crisis, high inflation and rapidly rising interest rates.

The study

The FSCS is an independent body, funded by the financial services sector, which pays out compensation when financial firms go out of business. The goal of the research is to help FSCS and stakeholders across the financial services sector to identify gaps and opportunities to provide consumers with accurate information about FSCS protection. The study uses data from a tracking and consumer research survey, which is conducted monthly by FSCS in partnership with research company The Nursery. The fieldwork was carried out by research company Dynata among 13,418 UK adults aged 18+, with an average of 750 survey completions per month, between February 2021 and July 2022.

Key findings

Key findings are as follows:

• Understanding that FSCS offers compensation when banks and building societies fail is high, but much lower when it comes to the protection offered for bad advice or mis-sold products.
• Awareness that FSCS protects different products also varies widely. There are high levels of awareness of the protection FSCS offer to deposits, in part thanks to a majority of consumers being familiar with the FSCS Protected Badge.
• Awareness that FSCS protects pensions and investments is much lower, in part due to the complexity of these products and the protection available.
• The risk of consumer harm tends to be much higher when it comes to pensions and investments. This is because the amounts at stake tend to be very high in products as important to consumers as their pension, and in many cases the money returned to customers is less than the total amount they lost.
• Confidence in choosing and managing financial products increases with awareness that FSCS protects the product, and this is particularly true for pensions and investments.

Points to consider

• Methodological strengths/weaknesses: The methodology is not described in detail but because the sample comes from a year’s worth of data, the bases for questions are robust.
• Applicability: This study will be mostly of interest to the FSCS itself and the financial institutions and industry bodies that fund the FSCS, provide products that the FSCS protects and advise consumers about those products.
• Relevance: The data is from 2021-22 so if FSCS has been working to promote its services since then, a stated goal, levels of consumer awareness may well have changed.
• Generalisability: This work is specific to the UK adult population.