Robo-advice is far from a ‘silver bullet’ and risks leading to poor choices being made by consumers reaching retirement, the managing director of a pension firm says.

Andy McCabe, MD of Selectapension, which he set up in 2004, has told Financial Planning Today that failure to understand pensions meant many would be unable to get what they need to get from an automated or robo-advice service.

He believes that the Government needs to take action to tackle ignorance surrounding pensions but also criticised its Pension Wise service, raising questions over its effectiveness.

He said: “One of the biggest challenges the pension industry faces is tackling education amongst those customers at retirement age. There is still widespread confusion that surrounds the pensions freedom, and the options available.”

Mr McCabe, a former Legal & General marketing manager, fears that new so called robo-advisers could cause further confusion for consumers.

He said: “Robo-advice has almost been portrayed as a silver bullet for this problem, but that is far from the case. Due to the low level of general understanding amongst consumers, robo-advice runs the risk of leading consumers to incorrect decisions, as many will not understand the terms and concepts, let alone their full financial circumstances, to get the most out of such a service.”

Asked what practical steps he would take to tackle pensions ignorance if he was in Government, he said: “Too often decisions are made from the top down and consumers are not consulted.

“The first step for our Government should be to host a professional forum, and have representatives from consumers, advisers, providers and industry stakeholders sitting round the table.

“This will ensure the full implication of any future changes are understood, and make sure that everyone is pulling in the same direction.”

Educating employers, so that they can then educate their staff or point them towards the correct guidance will also be crucial in tackling the lack of knowledge people have on pensions, he added.

Asked his view of Pension Wise, which has faced some criticism within the industry, he expressed his own doubts, saying “even an expensive marketing scheme is unlikely to drive a turnaround”.

He said: “Ultimately, it does not have the capacity to help the British public in managing their pension arrangements, given the specialist knowledge required for such a role.

“For example, staff offering guidance from Pension Wise may not be experienced in discussing DB or drawdown arrangements, and will certainly have less understanding than professional financial advisers.

“Pension Wise should also prioritise the retirement market as a whole: pre-retirees as well as those at retirement, so we see a greater understanding of the importance of saving for retirement.”

He added: “Perhaps the most valuable role Pensions Wise can play is to highlight the value of financial advice to consumers.”

Mr McCabe, who oversaw the launch of the Selectapension Bureau Service this year, employs 34 staff at the firm.