UK:Financial jargon leaves consumers confused and out of pocket

Widespread confusion over financial terms means millions of people may be taking out important policies or products without completely understanding what cover the product offers, according to new research from Aviva – highlighting the need for greater efforts by the industry to help consumers’ understanding of financial services.

  • Two in five (41%) ignore financial information because they don’t understand the terms used, with 13% of these losing money as a result
  • 43% of UK adults know the capital of Peru while 26% can explain football’s offside rule – yet less than a quarter (22%) say they know what a defined contribution pension is
  • A third (30%) of homeowners think home insurance covers ‘anything that happens in their home’
  • ‘Busting the Myths of Home Insurance’ guide published today to help consumers’ understanding of policy features and common exclusions

The findings show two in five (41%) UK adults – equivalent to 21m people1 – have ignored information given to them by financial providers, such as pension or bank statements, because they don’t understand the terms used in them.

Of those, almost one in five (17%) say they have missed an important change to their policy while 13% – 2.7m people – say they have actually lost money because they have ignored important communications.¹

To help combat the confusion caused by complex terms when taking out financial products such as pensions and insurance, Aviva this month became the first UK insurer to launch a Skill on Amazon’s Alexa voice service, following a rapid 12 week development. Alexa is the brain that powers Amazon Echo and Echo Dot, and enables customers to interact with devices in a more intuitive way using voice.

Aviva is testing an Insurance Jargon Buster Skill on Alexa, giving users instant, voice-controlled access to a glossary of over 300 insurance terms and their definitions.

This has been followed by the launch today of a new Aviva consumer guide, ‘Busting the myths of home insurance’. This aims to explain in simple terms what a typical home insurance policy covers, as well as highlighting common exclusions and helping consumers ensure they have the right cover in place.

UK adults are over-confident about their pension knowledge 

By testing consumers’ understanding of common pension terms as well as their general knowledge, Aviva’s research found more than two in five (43%) UK adults can accurately identify the capital of Peru, while 26% can correctly explain football’s offside rule.

In contrast, fewer than one in four can identify the correct definition of a defined contribution pension (22%), income drawdown (22%) or an enhanced annuity (16%).

Understanding among women is particularly low. Less than a third (31%) of women know what an annuity is, and are more likely to know what breed of dog a Jack-A-Poo is (21%) than how to describe a defined contribution (16%) pension.

Table 1: Percentage of UK adults who chose the correct definition/explanation

 

All

Men

Women

Semi-colon

47%

47%

47%

The capital of Peru

43%

52%

35%

Annuity

39%

47%

31%

Defined benefit pension

28%

37%

20%

The offside rule

26%

40%

14%

Bonds

23%

26%

20%

Defined contribution pension

22%

29%

16%

Income drawdown

22%

30%

15%

Jack-A-Poo

18%

15%

21%

Enhanced annuity

16%

21%

11%

Espresso martini

11%

8%

15%

There is also a disconnect between the percentage of adults who say they understand pension terms and the proportion who can actually identify the correct definitions.

While more than half (53%) of UK adults say they know what an annuity is, more than a quarter of these (27%) then went on to choose the wrong definition. Similarly, two in five (39%) say they know what a defined benefit pension is, but 27% of these could not select the right description.

Many homeowners wrong-footed by typical home insurance policy exclusions

Separate Aviva research among homeowners also suggests many are confused about what a typical standard home insurance policy covers, with nearly one in three (30%) holding the view that home insurance covers “anything that happens in their home.”

Even more believe that accidental damage (59%) and personal belongings (46%) are covered by home insurance policies; nearly three in ten (29%) think damage by pests or vermin is covered; and one in four (25%) expect policies to insure against damage to fences, whereas all can be common exclusions or depend on arranging additional cover.

As well as referring to the new written myth-busting guide, customers wishing to know more about their home insurance can simply ask Alexa about insurance terms, such as personal belongings, accidental damage and common exclusions.

Alistair McQueen, Head of Savings and Retirement at Aviva, comments:

“It doesn’t come as a surprise that people are more tuned into the subtleties of the offside rule than pensions and insurance products. All the same, the consequences of being in the dark about your finances are rather more serious than your sporting knowledge being found wanting, and are something which Aviva is committed to address.

“The very essence of insurance is about reducing uncertainty and giving customers peace of mind, which is why it’s vitally important that as an industry, we help people get to grips with the language and principles of products that many rely on. The Alexa Skill and the myth-busting guide are the latest in an ongoing series of improvements and transparency initiatives we are pursuing to help improve customers’ understanding of common financial terms and how everyday products work.”

Ends

If you are a journalist and would like further information, please contact:  Aviva Press office

Fiona Whytock: 01904 452659/07800 692299 | fiona.whytock@aviva.com

Liz Kennett: 01603 685461/07800 692675 | liz.kennett@aviva.com

Katy Hurren: 01603 848715/07800 692548 | katy.hurren@aviva.com

Methodology:

Findings are based on two waves of research:

-       The findings relating to UK adults’ pension knowledge are from CensusWide research with 2,027 general consumers aged 18+ between 26th October and 31st October 2016.

-       Research conducted on behalf of Aviva by ICM with 1,000 consumers with home insurance.   May 2016

1 Population figures based on the latest (2015) mid-year estimates from the Office for National Statistics, published 23 June 2016, indicating there are 51,339,161 adults aged 18+ in the UK.

Notes to editors:

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