Can you spot the real pension terms from the fake?
Do you know your LOL from your FLUMPS?
Pensions are notoriously difficult to understand, and what really doesn’t help is the incredibly complex and strange language that comes with them. Our research1 reveals that Brits struggle to seperate 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! On top of this only 1% of the nation could correctly identify the definitions of key pension terms.
Take our quick quiz to find out how you compare. Or, scroll down to discover the key findings.
4% of Brits thought text slang LOL and television channel QVC were pension related terms. And the same amount of people thought offside was a term used in the pension world. Let’s hope they weren’t footy fans! The pension acronym that most Brits failed to recognise was FLUMPS, with 97% claiming this was not a pension related term. While many could have been confused with the popular marshmallow sweet, a FLUMP is a flexible way of taking money from your pension when you’re not in drawdown.
Money coming or money going?
There were some areas of pension terminology where Brits showed some impressive knowledge. 84% were able to identify the correct definition of State Pension and nearly two-thirds recognised tax-free cash as the money you can take from your pension pot without having to pay tax. Awareness of tax-free cash was greatest for the over 55s, with nearly three quarters confidently identifying the correct definition. Some common misconceptions included 1 in 10 people believing they pay their own money into the State Pension, and the same number of people believed their employer would take money from their pension when they retire. Most worryingly, nearly half of Brits didn’t know what tax-relief is and are seemingly unaware that the government refunds their income tax back into their pension.
Once in a lifetime
The pension terms that people were most likely to get wrong or mark as don’t know are:
- Lifetime allowance – 82%
- Annual allowance – 65%
- Drawdown – 63%
- Personal pension – 57%
- Final salary – 55%
The lifetime and annual allowance evidently had most people scratching their heads. Nearly a third of people thought the annual allowance is a limit on how much money you can take from your pension in a year rather than the limit on the amount you can pay in and still receive tax relief.
Unless your pension is expected to reach a million pounds, it’s unlikely you’ll come across the lifetime allowance. Unsurprisingly 8 in 10 people struggled to pick out the correct definition of the lifetime allowance as: a limit on the amount of pension benefit that can be drawn from your pension over your lifetime without incurring extra tax charges.
Millennials aged 25-34 were the least likely to be able to recognise what a final salary scheme is compared to nearly double the amount of those aged 55 and over. And it’s hardly surprising with final salary schemes like gold dust for most workers now.
If you’re struggling to understand your pension, then there are plenty of regulated financial advisers who speak your language. You could request a call back to find out how Portafina can help you.
1Statistics taken from a survey of 2,002 UK adults in June 2019