Malcolm Mclean says getting the channels of communication right and engaging more openly is a good starting point
I think most of us would accept that good communication with members has always been a necessary part of our pension arrangements.
It is true that over the years there has been an improvement in standards as better and more modern methods of communication - digital or otherwise - are developed and introduced.
But it is not all good news. Many consumers will tell you that they still find information provided to them about pensions difficult to understand. This is sometimes because of the complexity of the subject matter but more often because of our inability to explain the rules in a way that people with no real knowledge or experience of pensions can readily understand. Some providers seem to think that simply sending the member a pack of documents is the answer. In my experience this rarely works and the pack goes straight in the bin. I understand the wish to be comprehensive and to "cover your back" but for the average consumer less is probably more and the shorter and simpler the messages the more likely they are to be taken on board.
The language of pensions is also a problem. There is still frequently too much jargon in our communications, fine for internal purposes but very confusing for members. Expressions like ‘trivial commutation' or, even worse, ‘uncrystallised fund pension lump sum' should rarely, if ever, be used in communications with the general public.
Does this really matter in the grand scale of things? Well, yes it does in my view and increasingly so now we have pension freedoms, which despite their obvious appeal have many potential pitfalls within them for the unwary.
For example, in a recent survey conducted by Prudential, over a quarter (27%) of individuals over the age of 55 apparently didn't realise they had to pay tax on their pensions if they take the whole fund as a cash lump sum. Have they been misled by loose talk about pension pots now being able to be used like a bank account? I wonder.
Similarly, the Office for Budget Responsibility has reported that the revenues from pension freedoms in 2018 will be 50% more than forecast and that individuals are often unwittingly paying tax when it could be avoided.
Even more grotesquely, we now learn that since the pension freedoms were introduced in 2015, close to a million people aged 55 and above have been hit by the Money Purchase Annual Allowance (MPAA) which reduces the amount they can safely invest in their pension from £40,000 a year to as little as £4,000. Many will be totally oblivious to the fact that by even withdrawing a very small amount from their pension pot that is subject to income tax - say perhaps for a holiday- they could inadvertently be triggering the MPAA. This could seriously place in jeopardy their future retirement plans and level of pension income in retirement.
It is quite scandalous that HMRC should be benefitting to the extent that it is at the expense of individuals. But this will continue to happen if it isn't made clear to members the consequences of certain actions they may be contemplating, now or in the future.
Obviously, we can't expect consumers to become pension experts overnight and we should encourage them to take advantage of the guidance and advice services available, particularly at the decumulation stage when they are facing one of the most important and challenging financial decisions of their lives.
But explaining pensions in a broader sense and raising awareness and greater engagement by members with the workings of their own scheme is important as well. Getting the channels of communication right, engaging more openly and honestly with customers and using plain everyday language in those communications is a good starting point.
Malcolm Mclean is senior consultant at Barnett Waddingham
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