Information supplied by consumer advice organisation Citizens Advice (CitA) has highlighted the importance of advisers communicating to their clients in plain English.
CitA has released details of its experiences when delivering the free Pension Wise guidance service. It says that the pension language consumers most frequently fail to understand are:
• Open market option – the right to shop around for the best annuity available in the marketplace, rather than simply accepting the quote offered by the pension provider
• Safeguarded benefits – such as a guaranteed minimum pension, or a guaranteed annuity rate
• Uncrystallised funds pension lump sum – a cash withdrawal from a pension fund without entering into a formal product such as an annuity or a drawdown plan
CitA also commented that large numbers of consumers do not understand that they can access their pension savings at any time after the age of 55, and instead believe that they have to select their retirement date in advance and stick to this.
Other jargon CitA says consumers have difficulty understanding include:
• Flexi-Access Drawdown – the client enters into a policy under which they can access as much or as little of their pension fund as they wish as income and/or lump sums. Meanwhile, the remaining monies remain invested, and hopefully continue to grow
• Lifetime Allowance – a limit on the sum that can be withdrawn from an individual’s pension schemes without giving rise to a tax charge. The allowance applies to the combined value of all of an individual’s pension savings, other than the state pension. From April 2016, the Lifetime Allowance will reduce from £1.25 million to £1 million
• Benefit Crystallisation Event (BCE) – an event that means the value of an individual’s pension savings will be assessed to see if they exceed the Lifetime Allowance. BCEs include purchasing an annuity or drawdown product, dying before accessing the pension pot or not accessing pension funds by age 75
Gillian Guy, chief executive of CitA, commented:
“Pensions can feel like a foreign language for many people.
“Tricky terms like flexi-access drawdown and uncrystallised funds pension lump sum are mystifying consumers, but our staff at Citizens Advice also find people misinterpreting seemingly more straightforward pensions terms.
“A small misunderstanding about your pension can lead to a lot of confusion, and mean some consumers don’t get the best option for them.
“If the pensions industry took the simple step of getting rid of complex language, it would go a long way to help people get on the right track towards a more financially secure retirement.”
The Financial Conduct Authority’s rules say that a client communication should be “presented in a way that is likely to be understood by, the average member of the group to whom it is directed.” Advisory firms must ensure that where jargon is used on their promotions and suitability reports that these terms are also explained in plain English. Terms should also be expressed in full, instead of using abbreviations such as FAD, BCE and UFPLS.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.