At a roundtable on income drawdown this morning (July 3), hosted by financial planning software firm EValue, industry professionals suggested greater awareness may lead to people being more proactive in managing their pots.
Representatives from St James’s Place, Zurich, Fidelity and EValue said there was an issue with pension statements not providing a breakdown of what people own, whether this be a share in a company or property and developments.
Holly Mackay, chief executive and founder of Boring Money, said people were often unaware that pensions can be used as an investment.
She said: "When it comes to pensions people concentrate on what [it] is worth and its value rather than how much it can bring in via investments.
"One reason for this could be accessibility. People are not able to access their pensions for the majority of their life, therefore don’t see it as their own money."
There also needs to be a bigger push to encourage young people to invest in higher risk funds to boost their pension pots as when individuals approach retirement age there is less scope to be able to do this, the roundtable heard.
It was flagged that people often overestimated the risk in investments and did not understand that there was an upside to risk.
For example, that choosing the correct level of risk could be the difference between having enough money to last until death or running out of money mid-way through retirement.
There was also agreement that people were avoiding talking about their pension either because they were embarrassed that they have not engaged with it so do not have a lot of money in their pot or because they were uncomfortable talking about money.
Meanwhile, several people in the room suggested people were not going to advisers because they did not understand what advisers do or they did not trust them to find them the best outcome.
According to EValue, 44 per cent of consumers don’t turn to advisers due to the cost, whereas 43 per cent would rather go to their pension provider for advice.
Despite this, the industry has found that people still prefer to speak to a human to get guidance and advice rather than through technology or online.
Chet Velani, chief commercial officer at EValue, said: "We can have platforms and technology which help people get the guidance that they need but eventually people get to the point where they need a human being to tell them that they are doing the right thing."
He went on to say how the industry had not yet seen the "damage that pension freedoms will bring about".
Pensions freedoms were introduced in 2015 and allow individuals to access their pensions in any way they like from age 55.
This means people who may previously have retired on an annuity now have access to complex income drawdown products they may not fully understand.
Mr Velani said: "The more freedom you give people the more likely it is that they are going to do something wrong.
"People find income drawdown complicated therefore putting the power into their hands can be rather dangerous."
In a paper published last month (June 30) charity Age UK warned many older people were making risky decisions when entering drawdown and were lacking access to appropriate products.
Caroline Abrahams, charity director at Age UK, said at the time: "The pension freedoms introduced in 2015 have been really popular to date and there’s no doubt that many are enjoying and benefitting from the greater flexibility they’ve been given.
"However, we are worried that a lot of older people with small and medium-sized pension pots, who do not pretend to be particularly financially savvy, are making risky decisions that could leave them in a mess in a few years’ time, especially if there’s a downturn in the market as is bound to happen at some point."
amy.austin@ft.com
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