‘Trivial commutation’ is the UK’s most misunderstood pension term, with 97 per cent of pension scheme members not understanding what it means. Second most misunderstood is ‘EPA’ – effective pension age – not understood by 94 of members, followed by ‘partnership pension account’ which goes over the head of 90 per cent of members.
The most understood term was ‘normal pension age’ understood by 80 per cent of members, followed by ‘pensionable earnings’, known by 69 per cent and ‘additional voluntary contributions’, understood by 64 per cent, according to research by pension administrator MyCSP launched to coincide with National Pension Awareness Day.
When members were asked how well they understand their pension in general, on a scale of 1 (not at all) to 10 (understand completely), the average score across all respondents was 5.79. Using the same scale, in terms of how important their pension is, members on average rated it 9.39.
The research found that half of people aged between 50-59 have not given any thought to pension planning. This included 50 per cent of men and 49 per cent of women.
MyCSP communications director David Boardman says: “Pensions can be complicated. However, as an industry we haven’t done well in increasing peoples understanding and in part this is due to the terminology used and failing to explain things in a way that everyone can understand. The issue is not about simplification of pensions, it’s about trying to find ways of communicating and explaining the various products and services and how they relate to an individual’s retirement. For example, our commitment to help demystify the world of pensions has included a clear glossary of terms, bite-sized information and quick-start guides. Furthermore, our experience of addressing this issue over the last two years is that one size doesn’t fit all and communications needs to be as targeted as possible to the individual pension scheme member.”
Most misunderstood pension terms:
|Rank||TERM||Not sure / do not understand|
|3||Partnership pension account||90%|
|4||Pension input period (PIP)||87%|
|6||Lifetime allowance (LTA)||81%|
|7||Annual allowance (AA)||79%|
|15||Additional voluntary contributions (AVC)||36%|
|17||Normal pension age (NPA)||20%|