The body drew up a five point plan aimed at engaging consumers with their retirement options far earlier in their life than is currently the case.
The trade body said it had concerns that more than half of fully withdrawn pension pots were not spent, but were moved into other savings and investments instead, as identified by the Financial Conduct Authority's (FCA) interim report of its Retirement Outcomes Review.
This could mean consumers were paying too much tax and missing out on compound investment growth, the ABI stated.
The ABI called on the government, regulators, guidance providers, the advice community and consumer bodies to work together to make the interventions a reality.
Rob Yuille, head of retirement policy at the ABI, said: "Pension freedoms put more power into the hands of consumers, but this flexibility also increased the complexity and risks that consumers face.
"Our recommendations are for interventions that will transform the way people interact with their pension pots and help people navigate their choices.
"We are calling on a number of stakeholders today to help us to deliver the practical steps needed to make these interventions happen."
The five interventions tabled by the ABI include tailored and phased customer communications throughout a saver's life; a mid-life MOT; prompts for people to use guidance; overhauling retirement risk warnings; and improving in-retirement communications.
The ABI called on the government and regulators to simplify rules on annual statements, and align the data providers need to give their customers in all types of regulated communications.
The trade body called on the industry to develop simpler communications that are targeted at people depending on their age and financial circumstance and that include a call to action, such as to seek guidance or increase contributions after a job promotion.
The body warned information given at the wrong time in a person's life can either be ineffective or prompt them to make bad decisions, such as taking out a cash lump sum just because it is on offer.
The government, industry and guidance bodies should work together develop rules of thumb that are not personal recommendations, hence steer clear of giving financial advice, Mr Yuille said.
The ABI thinks a mid-life MOT, as proposed by John Cridland in his independent review of the state pension, could help prompt people to seek guidance but it would need to be provided by an impartial organisation, although it could be facilitated by providers or employers.
It also wants the regulator to re-consider the extent to which providers are allowed to intervene when their clients plan to make decisions that could be detrimental.
Currently, providers are required to issue risk warnings as a second line of defence but the ABI said there have been cases where a client was about to make a decision which would cost him a tax charge of tens of thousands of pounds but there was little the provider could do to stop it.
The ABI said: "There are some methods and tools that providers can use in these scenarios, such as introducing pauses in the customer journey and encouraging the customer to take more time to consider their decision. But in many cases, this will not be enough.
“We would like to work with the regulator to identify certain scenarios, using case studies, where the risk warnings have either had minimal impact or have failed customers, and to develop a more suitable approach.”
The body also called on the FCA to work with the industry to create guidelines for better communication with clients already in retirement.
It said much of the information providers are required to include in annual statements was long-winded and unengaging, therefore the FCA should clarify and simplify the existing rules around in-retirement communications, and play a role in the development and potential testing of any revised approaches.
Alan Chan, director at IFS Wealth & Pensions, said: "I am all for getting consumers engaged with their pensions from an early age.
"[This way] you break it down into more manageable bite size chunks and it can then be signposted for them to seek guidance or professional advice well in advance."
He said people leaving things to the last minute often found it stressful to make a decision as they struggle to grasp the terminologies used in pensions and do not understand where their money is invested.
He said: "Couple this with the new pension flexibilities, tax implications and it all becomes a big minefield."
You can hear more on this topic at the ABI’s upcoming Retirement Intervention and Innovation event taking place today (26 April) in London.
carmen.reichman@ft.com
