Millions of British people don’t understand how their pension works, according to research from the Financial Conduct Authority (FCA).
The survey assessed the attitudes of 13,000 people to determine how well people understand the financial services sector. In particular, the research examined behaviour and attitudes towards pensions accumulation and decumulation.
6.4 million UK adults could not say whether their pension was a defined contribution scheme or a defined benefit scheme.
Meanwhile, 10% of those aged between 55 and 64 thought that income drawdown would provide them with a guaranteed income for life, when in reality it does not.
One in seven people within this age group believed that a single life annuity would see the value of their fund fluctuate and just 51% knew it would give them a guaranteed income for life.
A quarter of people who have accessed a defined contribution pension in the past two years don’t know how they did so, according to The Financial Lives survey.
It also found that three in 10 people had bought an annuity in the past two years while one in five had bought into an income drawdown arrangement. Meanwhile, one in six took their whole pension in one go.
Worryingly, 25% of people said they were either receiving an income or had taken a cash lump sum from their pension though they did not understand how this worked.
Although the report demonstrates a lack of financial understanding amongst many pension holders, only 6% of UK adults had received advice in the past year.