Incomprehensible jargon and an unapproachable advice industry are compounding already low levels of financial literacy and making it even more difficult for Brits to save for their retirement.
UK-based Portafina Investment Management surveyed over 2,000 adults in the UK and found pension technical terms are understood by just 13% of consumers.
Only one in eight people receiving regulatory-required pensions documentation understand key terms like: critical yield, lifetime annuity basis, uncrystallised funds, pension commencement lump sum and annual management charge rebate.
Unsurprisingly, most of the respondents (84%) called for easy to understand documents using plain English and more graphics to make them clearer.
Tackle the root cause
Jane Goodland, corporate affairs director at Quilter, told International Adviser: “Financial illiteracy has long been an issue.
“Why take out a financial product if you are going to be faced with a mass of incomprehensible jargon of which you lost the will to live half way through reading?
“In some ways financial illiteracy is perpetuated by the financial services industry’s reputation for being unapproachable and incomprehensible.
“However, the industry has taken good steps in recent years with initiatives to tackle jargon and make pensions language simpler, clearer and more consistent.
“As the research suggests, we must also tackle the root cause of the issue, namely the lack of financial education in schools. Research shows that, like many behaviours, our attitudes to money are shaped at a young age.
“The government should, therefore, give serious consideration to introducing financial education onto the primary school curriculum in order to tackle the epidemic of financial illiteracy which plights families across the country.”
Never too early to start
Respondents to the Portafina survey were asked: “What stops people from taking their pensions seriously when they are young enough to do something about it?”
The main reason given was “it’s too far away to prioritise” at a young age (46%).
Some 41% also said a “lack of education about pensions in schools” was to blame.
Nearly a third (32%) said that the whole market was “too confusing”, forcing young people to not start saving.
Neil Jones, wealth management and tax specialist at Canada Life, told IA: “While Canada Life has a direct to adviser model that means we are typically dealing with a deeply financially literate audience, we know it’s vital that we tailor our communications to ensure we are addressing the right audience with the right words.
“That’s why we look to work with our advisers to make it as easy as possible for their clients to understand our products.
“We strongly advise clients to seek professional advice when it comes to making long-term financial decisions – finance is complicated and while it is important to reduce jargon where possible, it isn’t always about the words.
“The underlying complexity of the calculations that make up a great retirement or estate plan mean that independent advice is essential.”
