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Malcolm McLean: Complex rules need simple explanations

“Pensions are not rocket science. They are basically very simple. For most people, they are nothing more than a means of putting money aside during their working years to give them an income in retirement.”

Is this statement fundamentally true? Well, yes, in theory at least. Obviously, pensions are not rocket science.

It is just that when you start talking about them and trying to explain them, it seems like they very well could be.

There are two main reasons for this. First of all, the rules and regulations around pensions have grown like Topsy over the years, adding to the complexity.

Changes are rarely, if ever, applied retrospectively, giving rise to accrued rights and entitlements for the same person over different periods of time.

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Secondly, the language of pensions seems to have taken on a life of its own and does not relate well at all to the man on the street.

There has always been too much jargon in communications with the public, emanating both from the government and the pensions industry at large.

There are two types of jargon, both of which can be problematic. The first is the type no ordinary person could possibly work out the meaning of themselves unaided.

Expressions like “trivial commutation” and “uncrystallised pension lump sums” are prime examples, yet I have seen both used in letters to the public without further explanation.

The other type – which in some respects is even more dangerous – is that which sounds like it means one thing but in fact means something else entirely.

For example, equities: something to do with fairness? Lifestyling: an exercise plan? Decumulation: the opposite of accumulation, meaning your funds are decreasing in value?

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Why is this so serious? Because faced with baffling language and opaque products, consumers are likely to make serious and expensive mistakes when contemplating their pension options – as they did in the early 1990s during the infamous personal pensions misselling scandal and could so easily do once again without help under the pension freedoms.

Communication that is poor or inadequate can also damage the image and reputation of a provider or an otherwise good-performing pension scheme, to the detriment of all concerned.

Although there has been some good work over the years to stimulate and develop better standards across the industry, I cannot help feeling we have some way to go yet before we can feel satisfied communication is as strong as it could be.

But let me say it once again: a pension plan is not rocket science. Let’s make sure that, despite all the challenges and constantly changing rules, we do not allow it to sound like it is.

Complex rules need simple explanations. Good communication is the key to future success in so many ways.

Malcolm McLean is senior consultant at Barnett Waddingham

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