Why are pensions so complicated?

Written by Clare Reilly on 7th Jan 2021

This article is an excerpt from the Good Guide to Pensions 2020. Download your free copy to find out more about your own pension and how to make it as good as you are.


If you’re perplexed by pensions, rest assured – you’re not the only one. No less than Andy Haldane, the Bank of England’s chief economist, has admitted that even he fails to understand them.

Speaking at a swanky City dinner a few years back, he reportedly told his audience that despite being “moderately financially literate” he was “unable to make the remotest sense of pensions”, before going on to conclude that “conversations with countless experts and independent financial advisers have confirmed for me only one thing – that they have no clue either”.

Somewhere along the way, the basic concept of a pension has become baffling, to the point where even a leading economist can’t grasp the industry’s intricacies. And it all started out so simple.

The first pensions

The first pensions can be dated back to Roman times and the reign of Augustus Caesar. In an attempt to quell a military rebellion within the Roman Empire, Augustus introduced one of the first recognisable pension schemes in history with his military treasury. He created a pension plan which enabled retired soldiers to receive a lump sum around 13 times their salary, following 16 years of service in a legion and four years in the military reserves. The retiring soldiers were in the beginning paid from general revenues and later from a special fund.

That’s not so complex, right? So why are we in such a mess over a millenia later?

One of the first places to point the finger of blame has to be the pensions industry. We’ve reached a point where the multitude of pension products has left savers in a muddle. And not only that, their associated acronyms resemble an alphabet soup. There’s SIPPs, SSAS’s, DB pensions and DC pensions – just to name a few – then there’s the various benefits that come with these schemes, like GCOs and GMPs. Anyone new to pensions would need a financial dictionary to understand all of these.

Behind the times on technology

Secondly, much of the industry has made pensions almost impossible to manage. Online platforms are archaic or don’t exist at all, with many companies still stuck in an age of paper and post. Despite us being well into the 21st century, an annual paper statement is still the norm in the pension industry. Retiring roman soldiers got more transparency about what they could expect to receive than many savers get today.

But it’s not just the industry that should shoulder the blame for all the confusion. Successive governments have played their part in all the complexity, too.

Since the introduction of the Old Age Pensions Act in 1908, our MPs have tinkered with pensions beyond all recognition. It feels like every Budget brings more changes from the Treasury, with some resulting in dire repercussions.

Moving the goalposts

Take the case of almost 3.8 million women born in the 1950s, who were hit hard when successive governments hiked up the age when they would get their State Pension. They expected payments to start at 60 – but then the government moved the goal posts. Changes were introduced further and faster than anticipated. Worse still, many of the affected women were only notified within a year of their expected retirement age, while others didn’t receive letters at all.

This left some women with less than a year’s notice to prepare for a six-year increase in their State Pension age, missing out on up to £45,000 as it rose from 60 to 65. Many had already taken irrevocable decisions – such as accepting redundancy, taking early retirement or leaving jobs for caring responsibilities – based on expecting their State Pension to kick in when they reached 60.

The situation facing these women represents the worst impact of government interference. Yet this is just the tip of the iceberg when it comes to the constant political tampering.

In 2015 we saw the ‘pension freedoms’ introduced, which, amongst a slew of smaller changes, shifted the age at which you could access your personal pension to 55 – only for this to be pushed back to 57 in recent legislation.

What’s the answer?

Dabbling like this hasn’t done savers any favours, especially when combined with the complexities of the wider industry. So, what exactly can we do to fix things?

An obvious place to begin is by taking steps to simplify the industry, which is exactly what we’re trying to do at PensionBee. We’re adverse to jargon and explain our products in plain English, whether that be our plans’ investment approaches or their fees. Standardising this across the sector would be an excellent way to get savers more engaged, as clear communication is key to reducing complexity.

In addition, the industry needs to embrace technology. We’re seeing more and more companies shifting online and introducing apps, but we’re still eons behind other sectors in the personal finance space. If you can check your bank balance 24/7, why shouldn’t you be able to do so with your pension? We need to follow the lead of other industries, and ease access to retirement money. Technology can make saving so much simpler – as we’ve shown at PensionBee. We’ve now combined the pensions of over 100,000 savers and given them complete transparency and simplicity, through our web and mobile app.

And last but by no means least, we need more consistency from our MPs. There needs to be a clearer strategy in place in terms of pension policy, aimed specifically at reducing the current complexity. In the meantime, we’ll be doing all we can to revolutionise the industry at PensionBee.


Risk warning: When you invest, your capital is at risk and you could lose all of your investment. The value of investments and any income from them can go down as well as up, and past performance is not necessarily an indicator of future performance. Before you invest, make sure you are comfortable with the level of risk you are taking on.