When was the last time you reviewed your retirement plans, and checked your investments? Here are five common pension mistakes you need to avoid.
Too many people in the UK approach retirement without a clear picture of what they’ll need. As a result, they don’t save enough in their pension, and miss opportunities to make the most of their investments.
According to the Department for Work and Pensions, four in ten people are not saving enough for the retirement they want. And nearly a third of retirees surveyed by Which? said they were not happy with how they had approached retirement, and 41% said they were now worried about money.
Over time, especially when you are saving up during your working life for potentially 20-30 years of retirement, small oversights can have a meaningful impact.
Stefani Williams from financial advisers Holden & Partners highlights five of the most common mistakes she sees people make with their pensions. And the good news is that many of these issues can be addressed with regular review.
Let’s look at the five common pension mistakes, and what you can do to avoid them.
1) Having a lost pension pot and not knowing it
According to the Pensions Policy Institute, there is £31.1 billion sitting in lost or unclaimed pension pots across the UK, with around 3.3 million pots going unclaimed, worth an average of £9,470 each.
The average worker changes jobs every five years, often leaving a small pot behind each time. If you’re wondering whether you have a lost pension, the government’s free Pension Tracing Service can help find missing pots. We’ve also got an article on tracking down any lost pensions here.
Tracking down a lost pension can take a little time, but it can be worthwhile – especially if you discover a nice little pot that has been quietly growing without you realising!
2) Only paying the minimum into your workplace pension
The minimum amount that must be contributed under pension auto-enrolment is 8% of your qualifying salary. 5% comes from your wages (4% from you, and 1% from the government in tax relief), and 3% from your employer.
However, for many people, this alone won’t be enough to meet their long-term goals. Standard Life’s calculations show that if you were to increase your contributions from 5% to 7% at the age of 22, you could have an additional £52,000 by retirement, adjusted for inflation.
If your employer offers to match any additional contributions you make, and you can afford to, you might want to consider increasing the amount you pay into your pension. It’s also worth considering salary sacrifice. This involves reducing your gross salary, and having your employer pay that amount into your pension pot. As your salary is lower, you should pay less income tax and National Insurance (NI), and your employer also saves on NI contributions.
3) Assuming the State Pension will cover you
The full new State Pension pays £241.30 a week from April 2026. That’s around £12,500 a year. However, you need 35 qualifying National Insurance years to receive the full amount, and career breaks and self-employment can create gaps.
Even if you do receive the full State Pension, have you worked out whether it’s enough? According to Retirement Living Standards, if you are single when you retire, right now you would need:
- £14,400 a year for a minimum lifestyle
- £31,300 a year for a moderate lifestyle
- £43,100 a year for a comfortable lifestyle
And a couple would need:
- £22,400 a year for a minimum lifestyle
- £43,100 a year for a moderate lifestyle
- £59,000 a year for a comfortable lifestyle
These figures all assume you are paying no rent or mortgage. As you can see, the State Pension alone won’t be enough if you are single, and could be a struggle if you are in a couple. That’s why, for many people, the State Pension forms part of their retirement income, rather than covering it entirely.
Too many people have never calculated how much they need when they retire. According to Unbiased, only 18% of UK adults feel confident in their retirement plans.
If you don’t know how much you will need when you retire, I recommend using our free retirement gap calculator here. We help you calculate exactly how much money you need to live on, and how short, or not, your retirement savings might be.
4) Not considering the pension inheritance tax change in 2027
At the moment, any unused defined contribution pensions sit outside your estate for inheritance tax purposes. However, from 6 April 2027, they will be included. The government estimates that 10,500 estates will be affected, with the average liability rising by around £34,000.
If you are using pensions as part of longer-term estate planning, it’s worth reviewing how this may affect your approach.
5) Not reviewing how your pension is invested
Many people are placed into a default fund when they join a workplace pension, and don’t revisit that decision. However, over time, this may not remain aligned with your goals or risk tolerance.
According to Phoenix Group, more than half of defined contribution savers are projected to enter retirement undersaved or financially struggling between 2025 and 2060, with investment outcomes playing a role.
You also need to check what kind of fees your pension provider is charging, and benchmark their performance against other platforms and funds. Taking a few minutes to review how your pension is invested can be worthwhile. It’s something that often gets less attention than it should.
Review your retirement plans today
A third of Britons apparently have no retirement plan at all. And even those with pension savings may not have recently checked they are on track to meet their goals.
Taking the time to review both your retirement goals and your projected income – and avoid the mistakes above – can help build a clearer picture of what your retirement may look like, and give you time to make any adjustments if needed.
