A huge financial knowledge gap means most retirement savers have no idea that their money is invested in stocks and shares.
This means they fail to understand that the value of their pot rises and falls with the value of shares on the London stock markets.
And for direct contribution pensions, retirement income depends on how the underlying shares have performed.
Research by pension platform Hargreaves Lansdown revealed just over one in four retirement savers with workplace pensions realised their money was invested in shares.
Fewer women understood how their pension savings were invested, with only one in five knowing their fund managers invested their money.
Default funds warning for savers
The firm suggests that the government needs to span the knowledge gap to help retirement savers make the right financial decisions.
One issue highlighted is unwary savers are diverted into default funds to safeguard their cash prior to retirement – but these conservative investments can reduce the value of their pension pot once they stop working.
“In particular those with 10 to 15 years to retirement can often to take a less conservative approach,” said Nathan Long, a senior analyst at Hargreaves Lansdown.
“Taking control of your pension and making decisions about how the money is invested could mean a larger pension pot on retirement.”
Best kept retirement secret
He also explained that retirement savers can face restrictions on how they invest as many workplace pensions offer a limited number of funds compared with a personal pension, like a SIPP or the offshore version, a Qualifying Recognised Overseas Pension scheme (QROPS).
“The best kept secret in retirement planning is that you can actually boost the rate at which your pension grows,” said Long.
“We’ve become accustomed to endless calls to pay more money in to our pensions, but there is an equally important way to improve what your pension pays when you finish work, and that’s to help your pension investments grow faster.”
He also pointed out that ethical investments are becoming more popular with retirement savers and many funds offer the option to customers who do not want businesses that harm the environment or trample human rights to benefit from their investments.