If you struggle to understand your pension, you're not alone. Pensions jargon abounds and can leave many people confused, and perhaps unsurprisingly, engagement suffers as a result – but that could lead to poorer retirement outcomes if you're not careful. Happily, things could be set to change, with the Association of British Insurers (ABI) revealing a guide that aims to simplify things a bit.
The announcement of the guide follows research from Money Advice Service and ComRes which found that many consumers find the new retirement choices confusing, an issue compounded by the fact that different terms can be used to describe the same thing across different markers.
The research found that terms such as flexi-access drawdown, fund, and uncrystallised pension funds lump sum are far too confusing (and should therefore be avoided at all costs), while others, such as taking cash or "chunks" from a pension pot are seen as too informal. Consumers also felt that information about tax and fees should be mentioned explicitly and upfront, and that, above all, people want pensions language to encourage them to take responsibility for their finances, but that the communications used shouldn't be alarmist.
Many of these confusing terms and jargon have been used in abundance since the pension freedoms were introduced a year ago, but these have arguably only made the process more complicated for many retirees. This is why the ABI has intervened.
The organisation has formed a Pensions Language Steering Group to develop simple and consistent language that can be used across the industry. The 'Making Retirement Choices Clear' guide is the proposed result, with it aiming "to make pensions language simple, clear and consistent in order help customers better understand their options at retirement".
This guide aims to standardise the language used to describe options so customers can understand and compare products more easily without having to decipher complex technical terms, with the guide proposing that the new retirement options be explained simply as:
That's it! A whole lot simpler and no jargon to get in the way of understanding. This isn't set in stone yet, as the ABI is seeking views from the industry until 19 June, but it's hoped that this kind of standardised language can be applied across the industry thereafter.
"The industry recognises that pension language can be confusing and is working to make sure more people understand the new options available to them for their retirement," said Dr Yvonne Braun of the ABI. "Customers who are engaged in their pension are better able to make decisions that suit their individual circumstances, so it's important that we make these options as clear and comparable as possible. This guide to making retirement choices clear could make a real difference by helping people to better understand their options."
Unsurprisingly, the move has been welcomed by the industry, with many hoping that it'll lead to the end of confusing terms and will result in people becoming more engaged with their pension and at retirement options. Nathan Long, senior pension analyst at Hargreaves Lansdown, agrees: "Focusing on improving consumer understanding will help people make confident, appropriate and informed decisions when it comes to choosing what to do when drawing from their pension. Using words everyone can understand, even if they don't have a PHD in pensions, is crucial to improving understanding and will also help to build trust with pension providers."
So, would you welcome simpler pensions language, and would it help you make the right decisions at retirement? Let us know on Twitter or Facebook!
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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