L&G: Advisers need to help bust pension jargon

Annuities, drawdown, Sipps – these terms can confuse and alienate customers.

People really just want to know what will enable them to have the retirement they’ve always dreamed of, with enough flexibility to deal with life’s changing circumstances and perhaps a small inheritance to pass on too.

What is everyday terminology for us in the industry can often leave consumers confused about what’s best for them, or drive passive behaviours as retirement planning gets put in the “too difficult/to be looked at later” box.

What can we do as an industry to get people engaged with, even excited by, retirement planning? We need to change the way we speak to customers to reflect the fact that they have also changed.

As the auto-enrolment review published in December last year said, “at the heart of effective engagement lies the need for individuals to be able to easily understand the messages and information about pension saving they receive”.

Simplifying the words and terms we use when talking to customers will give them the confidence they need to make decisions about how they fund their retirement, while also ensuring that they are aware of the risks involved in getting it wrong.

Tim Sargisson: Why won’t consumers get the message?

For providers, it means looking again at the terms we use in our product information, our communication with those who have invested with us (including the wake-up packs we send out) and the way we speak to those who are already in retirement.

Advisers have a central role to play in busting the jargon. Intermediaries are on the front line with consumers and are continually explaining, demystifying and decoding the industry terminology for customers. The easier we can make it for them to do this, the more time they can spend actually advising clients rather than translating industry jargon.

In many cases, clients’ knowledge about product options is limited too. Advisers will not only need to explain the more straightforward things, such as what an annuity is, or the tax implications of withdrawing a pension as cash, but will also need to address the assumptions consumers might hold about product features.

For example, clients often don’t know what an enhanced annuity is. Therefore, they do not know that by disclosing any medical conditions or factors such as smoking, they could qualify for one. This would mean they get a better rate and therefore receive a higher income. Even smaller factors, such as alcohol intake and weight, can have an impact on the rate obtained.

In some cases, consumers’ experience of other financial products, such as life insurance, will inform their views on the solutions for retirement and lead them to believe that elaborating on historical medical issues might actually leave them worse off, whereas in fact it is more likely the opposite will be the case.

For all clients, it’s important to tackle outdated perceptions of annuities by using language that is relatable and not just product-focused. When it comes to annuities, the belief that all the products on offer are essentially the same still persists.

From the added benefit of providing a lump sum to loved ones, or the option to choose an income for life or for a fixed period of time, our industry needs to take every opportunity to raise awareness about the various options available in a way that is easy for customers to understand.

The pension reforms that took place three years ago have put the responsibility on the consumer to choose how they use their pension, but engagement in retirement planning remains generally low. Ditching the jargon is one way to help consumers understand their options and make more informed decisions.

Emma Byron is Legal & General managing director for individual annuities

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  1. I bet hardly any advisor had thought of helping their customers understand these things, this article will be a godsend. Next week, maybe write an article on how advisers should try to understand their clients financial position?

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