Pensions  

Jargon blamed for lack of pension saving

Jargon blamed for lack of pension saving

People failing to save enough for their retirement are blaming jargon-heavy language from providers for their lack of interest.

Research from financial advice firm Portafina found more than half of people it questioned will not be able to achieve Living Wage income in retirement and many said pensions jargon and a lack of education was preventing them from saving into a pension.

The IFA firm’s research, conducted amongst 2,003 people aged 18 to 70 in February 2019, saw 84 per cent call for plain English pension documents.

The majority (55 per cent) of 30 to 50-year olds thought their pension savings would not achieve the Living Wage income of £15,269 per year when put together with their State Pension entitlement, while 35 per cent of Baby Boomers aged 55 to 64 thought their pension was not on track to deliver this income. 

Of the older generation, people above the age of 65, 31 per cent felt their individual total pension entitlement was delivering less than £15,269 per year.

Just one in six (15 per cent) of 55 to 75-year olds estimated correctly that they would need about £200,000 in pension savings to hit the Living Wage retirement income target.

Jamie Smith-Thompson, managing director of Portafina, said: "This research highlights that there is still a widespread lack of engagement and knowledge of the tax advantages of saving in a pension.

"The continued use of technical language on statutory documentation does not help. This is only getting worse now that Mifid II has created the need for quarterly performance reporting and depreciation reports.

"These reports and updates must now become more visual, more real-time and available in a clearer format on all digital devices."

The research found a mere 13 per cent of respondents fully understood technical terms commonly used on money purchase illustrations and annual review documentation. 

Only one in eight people receiving this documentation understood key terms such as critical yield, lifetime annuity basis, uncrystallised funds, pension commencement lump sum and Annual Management Charge rebate, the study found. 

When asked what stopped people from taking their pensions seriously when they were young almost half (46 per cent) of respondents said it was ‘too far away to prioritise’, while 41 per cent felt a lack of education about pensions in schools was to blame.

Almost a third (32 per cent) said the pension market was too confusing, resulting in the younger generation tuning out of the idea of long-term saving.

Mr Smith-Thompson said it was time for the pension market to improve customer education and engagement, as well as improve access to digital information.

He added: "In addition, more needs to be done in terms of financial education in schools to fill clear knowledge gaps earlier in life."

About a quarter of Baby Boomers aged over 55 understood the Pension Freedoms, with 28 per cent being aware they can access their personal pension from age 55 onwards.

When it came to auto-enrolment awareness, half of 25 to 44-year olds understood it was compulsory for employers to offer an AE pension and that they had the choice to opt out.