We all know that jargon is a barrier to pensions engagement. Here’s seven words you definitely need to explain better
Jargon has long blighted pensions engagement.
It’s something we’ve all known for some time, but a tricky barrier to overcome.
Questions include: How do we know which words to explain? And how do we stop ourselves from being condescending? And perhaps most importantly, how do we replace jargon without resorting to… well… more jargon?
However, new research conducted by the Reboot Online Digital Marketing Agency has explored which terms Brits are most baffled by.
Alarmingly, seven of the top ten terms related (directly or indirectly) to pensions.
The bad news is this means we’ve got a lot of work to do. But on the upside, we now have a starting place.
Here’s the seven terms people find confusing. Unfortunately, simply replacing them all isn’t really possible - after all, people are likely to find ‘fixed income’ just as baffling as ‘corporate bonds’ - but a combination of plain speaking and good explanations could help make sure your members actually understand what you’re telling them.
1) Corporate bonds
65 per cent of people said they didn’t know what corporate bonds are - putting it in second only to spread betting. This can hardly come as a shock, very few people understand what a bond is, let alone what a corporate one might be.
How to explain them: One easy way to explain bonds is to talk about an IOU. You lend someone (a company or the government) money, and in return they promise to pay you some interest. The term of the bond is how long you’re lending it for and the coupon (or interest) is how much they’ll pay you in return.
Corporate bonds are IOUs issued by companies (when the UK government offers them, they’re called gilts). When the term finishes, you’ll get all your money back and the interest to boot. Simple.
2) Self invested personal pension
Usually the preserve of the retail world, SIPPs are something that most of us responsible for workplace pension schemes would prefer not to have to explain.
That said, freedom and choice, complex tax rules and the ever-present threat of the lifetime allowance means that they may crop up in communications occasionally.
If you find you are mentioning them, explain them, or you’ll leave 64 per cent of your savers in the dark.
Very few people understand what a bond is, let alone what a corporate one might be
How to explain them: SIPPs are sometimes described as ‘Do It Yourself’ pensions, a concept that’s easier to understand. They’re special kinds of pensions where the saver has total control of where they are invested. They can be risky, so are only suitable for someone who has a good understanding of investments.
They shouldn’t be used as an alternative to a workplace pension you’re offered as you’ll probably lose out on the money your employer has to pay into your pension.
3) Tracker fund
Given the number of pensions investments (particularly DC) that use passive investing, it’s hard to imagine that tracker funds never make an appearance in your scheme comms.
64 per cent of people don’t know what a tracker is
But since 64 per cent of people don’t know what they are - it’s worth including a definition. Of course, you might use other bits of jargon like ‘index funds’ instead, but chances are these are no more illuminating for your average saver.
How to explain them: Tracker (or indexed) funds are designed to follow indexes like the FTSE 100 or 250. This means that if the index you’re tracking goes up you’ll make money but if they go down, you’ll lose some. They’re cheaper than lots of other funds and a good way of getting returns on your money without spending lots for a manager to pick funds for you.
4) Income drawdown
Before freedom and choice, the restrictions on who was allowed to do drawdown went some way towards mitigating the risk of this thoroughly confusing term.
Now, however, it’s criticially important that people understand all the options available to them. This is even more crucial if you’re one of the many schemes considering defaulting people into drawdown.
How to explain it: The best explainers of pensions options I’ve seen have tended to be videos.
Here’s a good example from comms provider Quietroom.
5) Defined benefit pensions
The phrase ‘DB pension’ is far less well understood than its predecessor ’final salary pension’. However, the increase of career-average schemes means that final salary isn’t really fit for purpose.
In an ideal world, you’d only be communicating to your members about your own scheme, so ‘pension’ would suffice. But in reality, many people have a mix of pensions provision, and various complications (such as DB to DC transfers) mean that people need to understand both terms.
How to explain it: If you have a DB pension, how much income you get in retirement will depend on how much your salary was and how long you worked at the company. Some employers base it on your final salary with them, while others will look at your average salary over your career. You should get a statement every year telling you what your DB pension will be worth.
6) Defined contribution pensions
It’s hardly surprising 62 per cent of people don’t understand DC pensions. After all, the term only really makes any sense if you knew what DB stood for in the first place.
62 per cent of people don’t understand DC pensions
How to explain it: If you’re communicating about a DC scheme someone is enrolled in - you might be better off just calling it a pension. But where you need to reference both kinds, try giving an explanation.
For instance: many workplace pensions are DC pensions. What this means is that how much money you will have to retire on depends on how much you save (as well as any money your employer puts in) and how it is invested. Sometimes these are also called money purchase schemes.
7) Government bonds (gilts)
According to the Office for National Statistics, pension funds allocated £31bn into gilts over the course of 2016 - more money than in any previous year since 1963.
It stands to reason, therefore, that the term is likely to crop up somewhere in your pensions comms.
How to explain it: Much like corporate bonds, gilts are best explained as an IOU, only this time for the government. If you lend the UK government your money, they will pay it back after a set time with interest. The term is how long you invest it for, and the coupon is how much interest you’ll get.