The pensions industry is often criticised for being bloated with jargon but surely, argues Jessica List, it is not the words themselves but the growing complexity of the system that is the real problem.
We have all had those moments where we forget the word for something and have to try to describe what we mean. We desperately hope our bemused friends or colleagues will be able to interpret our garbled sentences – and, if you are anything like me, frustrated gestures – and provide the elusive word. Life is much easier when we have – and can remember – the proper names for things.
‘Drawdown’ is a name of something. So is ‘annuity’. So is ‘uncrystallised funds pension lump sum’ – though admittedly, that is a pretty bad one. Still, all of these names are much shorter than a description of the thing they denote. In this context, however, names appear to be a negative thing. The pensions industry is criticised for being bloated with jargon – it is been cited as one of the biggest barriers to encouraging consumers to engage with pensions.
‘Jargon’, with its negative connotations, feels like an unfair word to use in relation to the names we have to describe the very specific processes and rules we follow. ‘Terminology’ feels fairer. Arguing semantics does not, however, help the fact that, as an industry, we are stuck between a figurative rock and a proverbial hard place.
If we use pension terms when communicating with consumers, we face the accusation of alienating consumers by using words and phrases they do not understand, instead of using ‘plain English’. Yet, avoiding pension terms altogether has its own problems – we risk writing pages instead of paragraphs, and describing complex processes without giving consumers an easy way to distinguish or remember them.
There is also a risk of this approach being more confusing, or even patronising, to the many consumers who are familiar with pension terms. These people will ask why we cannot just call a spade a spade – or a contribution a contribution.
So what is the solution? I would love to say I was asking rhetorically as it is a problem for which I would love to have an answer. We already avoid using terminology more than we realise. As an example, one of the reasons the tapered annual allowance can be so difficult to explain to consumers is that, before now, there has often been no reason to use terms such as ‘relief at source’ or ‘net pay’. We have simply talked about tax relief.
With consumers, we also tend to talk about tests against the lifetime allowance, rather than benefit crystallisation events. ‘Tax-free cash’ is a readily accepted alternative to the official ‘pension commencement lump sum’.
There are also many terms that are much more difficult to avoid, however, and here we are challenged to find a middle ground that neither confuses those less familiar with pensions, nor annoys those who are already confident in their understanding.
A very common approach is to give one good explanation and then use the term itself. This is not always easy though – especially as the explanation of one term will often contain more terminology, which then also needs explaining.
For some people, this will mean too many terms and explanations in one go; for others, it is a lot of unnecessary background information to skim through. The money purchase annual allowance (MPAA) is a perfect example of this. Even before you get as far as a definition, its name is made up of two other, separate terms. The MPAA is a policy built on the back of existing rules.
And this, of course, is the real issue – the complexity of the system. At their core, pensions are simple yet they are now encased in such a complex layer of interweaving conditions, limitations, and exceptions, built up over years of small changes, they are starting to feel impenetrable. We do not have a dictionary’s worth of terminology just for fun – we need these names to distinguish one rule from another.
I appreciate that, as both a lover of language and a pensions analyst, I am somewhat biased, but I honestly do not believe words are the problem.
Jessica List is pensions technical analyst at Suffolk Life
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