A quarter of people who have accessed a defined contribution pension in the past two years do not know how they did so, according to a survey by the Financial Conduct Authority.
The Financial Lives survey, which was based on research involving 13,000 people, assessed the attitudes people have towards the financial services sector.
The research examined behaviour and attitudes towards pensions accumulation and decumulation.
It found three in 10 people had bought an annuity in the past two years while one in five had bought into some sort of income drawdown arrangement. One in six took their whole pension in one go.
But a full 25 per cent of people claimed to be receiving an income or have taken a cash lump sum from their pension, but not to know how this works.
The report finds a number of areas where the British public appears to be confused or unclear about how pensions works.
For example 6.4m UK adults – or 13 per cent of the population – said they were contributing to a pension but could not say whether it was a defined contribution scheme or a defined benefit one.
Meanwhile one in 10 of those aged between 55 and 64 were under the impression income drawdown would provide them with a guaranteed income for life - which it does not - and just 42 per cent knew drawdown - in which the retirement fund remains invested to provide an income - would mean a risk of the value of their fund going down.
One in seven of this age group thought that with a single life annuity the value of their fund could go up or down and only 51 per cent knew it would give them a guaranteed income for life.
Despite this the report found only 6 per cent of the UK adults had received regulated advice in the past year.
Stephen Lowe, group communications director at Just Group, said: “This lack of understanding should give us all cause for concern.
“It indicates consumers are not well-informed or confident in the decisions they make about retirement incomes, and this is likely to lead to poorer outcomes for these savers over the longer-term.
“It’s clear there’s some confusion among consumers about what different products offer in the way of retirement incomes.
“There’s no doubt consumers would benefit from guidance when they access their pension pots and the need to offer consumers default guidance is becoming increasingly urgent.”
The survey also found people’s desires for their retirement income change as they get older.
Over two in five of those aged between 55 and 64 preferred flexibility to choose how much of their pension they take throughout their retirement and were willing to risk they might run out of money.
These preferences are very different to those held by their older counterparts, with three fifths – or 60 per cent – of those aged between 65 and 74 preferring a guaranteed income for life.
The survey found 15.1m UK adults had not retired and were not paying into a pension, with the self-employed and the unemployed most likely to find themselves in this category.