The use of robo-advice may be a solution for defined contribution (DC) savers who do not seek help, but should be sufficiently robust to avoid mis-advising and scamming, according to a report by the Pensions Policy Institute (PPI).
The report, sponsored by LV=, said the use of scalable solutions, such as robo-advice or online guidance, may reduce the cost of financial advice so that it is perceived as affordable.
Robo-advice is an online service that provides automated algorithm-based management advice, typically without the use of a human financial planner.
The PPI said in a previous study that those at risk of making poor decisions were people with DC savings of £19,400 to £51,300 and low or no defined benefit entitlement. It added that these people needed advice or guidance most.
The report explained scalable solutions with lower fees may be cheaper for these consumers and, with larger numbers using them, "may provide a commercial proposition to providers". It added that, compared to free guidance services, these had the benefit of offering a product recommendation.
However, the think tank warned the use of fully automated services could cause a reluctance to seek or take advice in the first place.
They added that it was not yet possible to assess the effectiveness of these solutions because even with full automation, some extent of human contact may still be required or desirable.
"Any robo-advice solution will need to be sufficiently robust to deal with current market concerns around the risk of mis-advising people, as well as the potential for scamming," said the report.
The report also outlined other interventions to help savers. These include: increased publicity around Pension Wise, an increase in the number of employer-sponsored financial education programmes, government-backed voucher schemes for advice sessions and use of default strategies.
John Perks, managing director of retirement solutions at LV=, said: "Deciding how to turn pension savings into a retirement income is an extremely complex decision, but too few people get the advice they need to help them make the most of their money."
Melissa Echalier, PPI senior policy researcher, said: "While there remains a gap in pensions advice and guidance provision we are seeing the emergence of approaches that may reduce the cost of advice to a level that is acceptable to DC pension savers."