The Nest Phrasebook or Pensions for Dummies

In the past couple of weeks “The NEST phrasebook” has been released to assist with the clear communication of pension issues and encourage public engagement in retirement savings by improving levels of understanding of the products on offer. Far be it for me to question how public funds are spent or the need to make pension literature more user friendly. In fact, one of our aims, especially in our blogs, is to demystify the world of pensions. However, there are a few clear rules: Firstly: the interpreter must understand the subject in the first place. Secondly: the layman should be given some credit and not patronise him. Thirdly: the cure should not be worse than the ailment. Does changing the term “trivial commutation” to “Taking your retirement pot as cash” suggest an understanding of the finer details or the audience? The additional explanation is unlikely to be remembered and suggests that the only way to fully commute a benefit is on the grounds of triviality. Does the layman need to be told that a “Fund” is usually made up of shares and other financial products? If so does this explanation tell him anything more? And would you expect the same layman to know what a gilt is? That’s a term that NEST thinks needs no further explanation. Now whilst I support the effort and can see what is being attempted in the previous examples I see no reason why an employee should be redefined as a worker, auto-enrol should become automatically enrol, pension commencement lump sum should be re-named “cash lump sum taken when you purchase a retirement income” and probably most shocking the term pension should no longer be simple enough. A pension now needs to be described as “the regular income you receive when you open your retirement pot”. Also, we must not forget to remove any potential age discrimination by referring to “on/approaching retirement” rather than “in later life”. Apart from the fact that people tend to retire in later life the very definition of retirement is much more fluid and therefore the term itself is quite complicated. Does retirement mean stopping work, reaching a particular age or, as should be the case, the time at which you “open your retirement pot” regardless of age or employment status? NEST either does not know the answer or thinks that everyone else does. It’s not all bad; the phrasebook does include some positive suggestions. It is probably a good first step but needs to go further and should have benefitted from some further input from those within the pensions industry who specialise in explaining how retirement benefits work. Unfortunately, pensions (not least because of the regulatory framework) are complicated and whilst any attempt by government to simplify things should be welcomed, a glossary of common terms, no matter how simple, is not the answer. Until we have a truly simplified regulatory system, which will probably be preceded by porcine avionics, appropriate professional advice is a must for both employers and employees (sorry, workers), NEST and auto-enrolment are on their way and responsible employers should seek advice on how they will be affected before it is too late.