Most of us spend the majority of our working life saving into our pension. However, all this hard work saving can quickly unravel for those who aren’t aware of common pension mistakes

NMTBP outlines 7 of the most common pension mistakes individuals make and how you can avoid making them

Withdrawing savings from a pension early

You can access your pension from age 55 (rising to 57 in 2028) under current rules, but that doesn’t mean you should start making withdrawals then. You can take up to 25% as a tax-free cash lump from your pot from this age, which might be tempting. However, remember that any money you take from your pension could potentially miss out on investment returns over the years ahead. Leaving your pension pot untouched for as long as possible gives your money time to benefit from tax-free growth, and time to provide enough for your retirement

Underestimating or overestimating life expectancy

Before withdrawing from a pension, it is crucial to think about if you will have enough money to last throughout retirement. Many people can potentially live longer than they expect to, and therefore may underestimate how long they think their savings need to last. According to recent research by Canada Life , people aged 50 and over, on average, think they will live until around age 80, whether male or female. However, according to the ONS life expectancy calculator, a male aged 50, will on average live to age 84, while a woman aged 50 will live on average to age 87

There is also a real risk that youe underspend, and can be too cautious in retirement. Often the early years are the most expensive, when you will hopefully be well enough to enjoy retirement, and possibly travel. In most cases, the amount you need declines into retirement unless care is needed, so keep this in mind when planning your retirement spending

Missing out on lost or forgotten pensions

The total value of lost pension pots has grown from £19.4 billion in 2018 to £26.6 billion in 2022. Some of the main reasons this occurs can be moving jobs, or moving house and not updating your address with your pension provider

If you have a lot of different pensions, you may want to consider consolidating them into one pension pot, especially as they may all have different investment strategies. It can also make it easier for you to manage your finances and could save you money on the fees charged. However, it’s important to ensure there aren’t any enhanced features or protections that could be lost by transferring, and that the scheme you choose provides the flexibility required for accessing your money in retirement

The government has a free Pension Tracing Service you can use to track down your lost pensions

Not understanding how pensions are invested

When it comes to pensions, you may not understand that pensions are often invested in ‘lifestyle funds’ which typically move investments out of higher risk funds such as equities, into lower risk funds including bonds and cash, as you approach your chosen retirement age. This made sense when the majority of people bought annuities, as they didn’t want to risk a market crash’s impact on their savings just before retirement. However, many people now access their pensions using income drawdown, meaning that it generally may be better for their pensions to stay invested in equities long into retirement, to give their money the potential to keep growing. You should speak to your pension provider to find out what investment path you’re on, and if it’s aligned with yourr retirement income plan

Not shopping around

Many people are choosing to use income drawdown instead of an annuity. If you’re one of them,  it’s crucial that you shop around to make sure you’re getting the best deal. In a 2022 investigation, Which? found that the difference in growth between the cheapest and most expensive drawdown plans for a £260,000 pot was nearly £18,000 over a 20-year period

Not considering all savings

When deciding how to access retirement income, it isn’t just about pension savings. It’s important to look at all savings and investments, whether they be pensions, ISAs, or shares, to make sure you’re using them in the most tax efficient way

Instead of taking money from your pension, you might be better off using other savings which aren’t growing tax-free and liable for income and inheritance tax (such as general savings, shares and cash), and leaving your pension to grow in a tax-free environment until needed

Not getting help from the right place

When it comes to getting support with their pension, research from WEALTH at work  indicates that more than half (56%) of working adults say they speak to unqualified sources such as family, friends or colleagues, or no one at all. Very few speak to their pension provider (15%), employer (13%), a regulated financial adviser (8%) or specialist bodies such as Pension Wise (4%) or Money Helper (3%).

The good news is that recent findings have indicated that employers are set to boost workplace financial wellbeing support. 44% of employers plan to offer targeted support for over 55s, and 68% already offer or plan to offer pre-retirement planning. It’s important for those in the workplace to understand the help and guidance available to them