Henry Thompson, Policy AdviserThe UK’s poor understanding of pensions is well-known. Frankly it’s not surprising when you consider the complexity of the language the industry converses in. Pension aficionados regularly rattle off phrases like ‘Money Purchase Annual Allowance’ and ‘Guaranteed Annuity Rate’, much to the bemusement of those who struggle to tell the difference between DB and DC.
What is probably more unexpected is the recent revelation that the Bank of England’s Chief Economist, Andy Haldane, confessed “to not being able to make the remotest sense of pensions”.
Given he considers himself to be “moderately financially literate” this is somewhat concerning to us in the industry. What hope is there for customers who don’t happen to sit on the Bank’s Monetary Policy Committee in planning for their retirement?
Fear not, Mr Haldane – you are not alone.
Six in ten customers put off saving into their pension as they are confused. Not only can this mean low levels of personal saving, it can also lead to disengagement, which can lead to poor consumer outcomes in retirement. This is a worrying prospect in the face of our increasing longevity and shaky savings culture.
So while the Chancellor’s 2014 Budget may have increased the nation’s awareness of pensions, dare I say even made pensions ‘sexy’, we need to use this surge of interest as an opportunity to reset how we engage with customers.
And Mr Haldane’s admission is a timely one.
A month ago, the ABI launched Making Retirement Choices Clear – a cross-sector initiative to remove jargon and standardise the language used to describe the new retirement options introduced last April. We know that many people find the new retirement choices confusing, and across the long term savings sector, different terms are being used to describe these options.
This Guide, pulled together with the help of Government, regulators, industry experts and consumer groups, aims to standardise the language used to describe the options so customers can understand and compare products more easily without having to decipher technical terms.
As part of the Steering Group process, the Money Advice Service commissioned ComRes to undertake in-depth research and consumer testing across the UK, with customers of varying ages and financial understanding. It tested language currently used by providers to describe retirement choices in their wake-up packs and other literature. Participants commented on the accessibility of the terms used, how easily they were able to understand various options and whether wording was confusing or unclear. The research’s recommendations have been used to create the Guide.
The hope is that obscure terms like ‘uncrystallised pension funds lump sum’ and ‘flexi-access drawdown’ will join their corporate cousins ‘blue sky thinking’ and ‘synergy’ on the scrapheap of jargon. But the value of this initiative will only be realised if everyone in the long-term savings industry adopts these phrases. Our consultation is open for another month and we’re encouraging everyone to have their say.
The Pensions Minister has already offered Mr Haldane a lesson on pensions. We’re also willing to lend a hand. We’ll pop a copy of the Guide in the post for you, Andy.
Henry Thompson is Policy Adviser in the ABI's Retirement and Savings team