If you are a silver surfer searching the web for retirement financial advice and are perplexed about the jargon, then you are not alone.
For instance, only one in five baby boomers – someone aged between 55 and 75 years old – who were asked to define key pension terms could do so correctly.
Only one in five understood the lifetime allowance, while just one in three could explain how the £40,000 annual allowance worked.
The study by IFA Portafina concluded that most over 55s confused the annual allowance with the Money Purchase Annual Allowance.
A third failed to understand how income drawdown worked despite this being one of the favoured ways to take money from a pension.
Lack of knowledge
Jamie Smith-Thompson, Managing Director, Portafina, said: “This research a widespread lack of knowledge of options and tax limitations associated with optimising direct contribution pension savings and withdrawals.
“The continued use of technical language on paper-based statutory documentation does not help. Providers’ wake up packs and annual statements need to become more visual, more real-time and available in a clearer format on all digital devices.”
In case you don’t know:
- The lifetime allowance is the total amount anyone can save in pensions. The current limit is £1.055 million – any higher amount in a UK pension is taxed.
- The annual allowance is the amount a retirement saver can put in a pension each year. The £40,000 limit applies to anyone who earns less than £110,000 a year – over that and the allowance tapers to £10,000.
- The money purchase annual allowance applies to over 55s who have drawn money from their pension. The allowance then limits their annual contributions to £4,000 a year
Try the pension jargon quiz
The IFA has an online quiz to help retirement savers test their pension knowledge.
“Pensions are notoriously difficult to understand, and what really doesn’t help is the incredibly complex and strange language that comes with them,” says the web site.
“Our research reveals that people struggle to separate pension related terms and acronyms from those used in everyday life. Not one person was able to pick out all of them from a list and only 1% could correctly identify the definitions of key pension terms.”