Whatever your age, having a plan for your retirement can help ensure you feel financially secure for the future. But many people still make mistakes when it comes to their pension savings. From not starting saving early enough to under-estimating how much money they need. Here are some of the most common mistakes and what you can do to avoid them.
1. Relying on the State Pension
The full new State Pension is currently £11,500 per year, or £221.20 a week (2024/25) which for most people isn’t enough money to live on. To enjoy a comfortable retirement, you might need to supplement the State Pension with your own long-term savings. You could do this by paying into a workplace pension (if you’re employed), private pension or both as well as using other savings products such as ISAs.
2. Waiting too long to start saving for retirement
Postponing contributions when you’re younger makes it harder to build your retirement savings. You either need to contribute more when you do start, or wait longer to achieve the same amount of savings.
Pension savings invested for many years benefit from the power of compound interest. The earlier you can start saving into a pension, the more time your savings have to grow.
3. Not getting value for money with your pension choices
Fees can significantly erode the value of the returns on your pension savings. Make sure to regularly check the fees you’re paying and compare against what’s available on the market to see if its the best option for you.
4. Losing track of pensions from past employers
It can be easy to lose track of old pensions when changing jobs or even when moving house if you forget to update your address with pension providers. In the UK, there’s an estimated £50 billion in lost pensions.
If you’ve misplaced paperwork for your different pension pots, try the government’s Pension Tracing Service. It’s a free tool to help people more easily and quickly locate their lost pension savings.
5. Not saving enough for the lifestyle you want in retirement
Most people significantly underestimate how much money they may need in retirement.
Use the Pensions and Lifetime Savings Association’s (PLSA) ‘Retirement Living Standards‘ to think about the kind of lifestyle you might lead in retirement. Based on their latest research a single person will spend:
- £14,000 a year to achieve a minimum living standard;
- £31,000 a year to achieve a moderate living standard; and
- £43,000 a year to achieve a comfortable living standard.
For couples, it’s £22,000 for the minimum living standard, £43,000 for the moderate living standard and £59,000 for the comfortable living standard.
From there, you can calculate what you need to be saving now to have a pot large enough to produce the annual income for your desired lifestyle. Use PensionBee’s Pension Calculator to play around with your regular contributions and see the impact on your pension pot in the future.
6. Not maximising the benefit of employer contributions
If you’re employed full-time, you’ll likely be enrolled into your workplace pension scheme. Under Auto-Enrolment rules, 5% of your qualifying earnings will be paid into your workplace pension with the employer contributing an additional 3%. Some companies offer more generous policies such as employer matched contributions. For example, if you increase your contribution to 8%, they’ll contribute a further 8%. There’s usually a limit but it’s worth discussing with your HR department to find out if this is something your workplace offers. So if you can afford to increase your own contribution, it can be an excellent way to grow your pension pot faster.
It’s worth noting, if you earn between £6,240 and £10,000 (2024/25) your employer doesn’t have to enrol you in a workplace pension. However, if you ask to join, they can’t refuse and must make contributions on your behalf.
7. Staying in the default fund
Many people are allocated the default fund when their workplace or private pension is first set up. These default funds are often ‘lifestyle’ funds. This means the equities are swapped for lower risk assets as the chosen retirement date approaches. Historically this made sense. This is because those approaching retirement didn’t want to risk the value of their savings declining before they purchased an annuity. However, with the introduction of income drawdown, pension savings can stay invested into retirement. You may want to seek independent financial advice to understand whether the fund you’re invested in is appropriate for you and your circumstances.
8. Not seeking guidance until close to retirement
Don’t make the mistake of thinking that financial advice is only relevant for people who are about to retire. Support with retirement planning can be worth paying for regardless of your age as it can be costly if you get it wrong. A qualified Independent Financial Adviser can provide you with a tailored plan and the peace of mind that your decisions are right for you and your family. You can use the Financial Conduct Authority’s (FCA) register to search for qualified Financial Advisers.
Those aged over 50 with a defined contribution pension can also book a free session with Pension Wise, which is backed by the government. It offers free and impartial guidance to help you make sense of your options.
Emma Maslin‘s a certified Financial Coach and Mentor, Financial Wellness Speaker and Founder of multi award-winning personal finance education website The Money Whisperer. A former Chartered Accountant, Emma believes financial health and wellbeing isn’t a luxury just for the wealthy; it’s a basic need for all of us.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
