Six pension mistakes people are making now that will cost them money in the future
Are overlooking something important that could reduce your retirement income? Here are six pension mistakes people are making now that will cost them money in the future.
According to Age UK, 1.7 million older people in the UK – that’s one in seven pensioners – are living in relative low-income poverty. If you don’t want to join this growing number in the future, the time to take action is right now.
And to help you, we’ve identified six easily corrected pension mistakes people are making that could cost them dear in future. Make sure you’re not guilty of any of these, and if you are, make sure you take steps to correct them as soon as you can!
1) Not filling in gaps in your National Insurance contributions
Many people rely on receiving the full State Pension once they reach the age they can receive it. But are you 100% sure you are entitled to the full amount?
To receive the State Pension you need 10 years of qualifying National Insurance (NI) contributions. And to receive the full State Pension you need 35. However, as of 2025, more than two million people (45% of new State Pension pensioners) were not receiving the full amount because of gaps in their NI records.
The good news is that you can backdate payments to fill any gaps you may have in the last six years. To find out your position, you can check your State Pension forecast here.
2) Not claiming Child Benefit in your name
If you have taken a career break to raise your family, you won’t be paying National Insurance contributions. However, you can ‘plug’ the gap in your NI record by claiming Child Benefit. But, and this is important, the Child Benefit needs to be claimed in your name, not your partner’s or spouse’s.
If you didn’t claim Child Benefit because your household income was too high to qualify, don’t worry. The government is introducing a new system that will enable affected parents and carers to claim their missing backdated NI credits for free. This is scheduled to launch in April 2027.
3) Not claiming Carer’s Credit
Similarly, if you take a break from work to care for someone, and you are caring for them for at least 20 hours a week, you need to make sure you claim for Carer’s Credit. And not just because you can receive financial help now, but because it will ensure you don’t end up with a gap in your National Insurance contributions.
4) Not keeping track of old pensions
According to the Association of British Insurers, there’s over £30 billion lying in unclaimed, lost or forgotten pension pots across the UK. That’s worth an average of around £9,500 per person who’s misplaced a pension.
This is why it’s important to keep track of any pensions you have. But don’t worry if you think you may have old pensions you have lost the paperwork for. You can find out how to track them down here.
5) Not maximising your pension tax benefits
Too many people are still unaware of the tax benefits of paying into a pension. If you are employed, and qualify for auto-enrolment, your employer must pay into a pension for you. The minimum contribution is a total of 8%, which is usually made up of 5% from your wages (4% from you, and 1% from the government in tax relief), and 3% from your employer.
Some employers will also match contributions you make on top of this. Even if they don’t, you still benefit as any salary you sacrifice for your pension is paid out before tax, which can reduce your tax liability.
If you are self-employed and a basic rate taxpayer, you will usually get a 25% tax top up on any contributions you make to your pension. This means that, for every £100 you invest in your pension, you’ll get another £25 from the government, making it £125. If you are a higher or additional rate taxpayer you can claim further tax relief through your Self Assessment tax return.
And if you run a limited company, any contributions you make to your pension through it are usually treated as an allowable business expense, and are offset against your corporation tax bill.
The most you can pay into your pension each year and benefit from tax relief is £60,000 or 100% of your income or profit, whichever is lowest. You can, however, use any unclaimed allowances from the past three years.
6) Not making the most of auto-enrolment
As we’ve just explained, you can enjoy tax benefits by paying into a pension scheme if you are employed, thanks to the auto-enrolment scheme. If you are employed, either full or part time, and meet these requirements, by law your employer must offer you a workplace pension scheme and contribute towards it:
- You are at least 22 years old
- You have not reached State Pension age
- You earn more than £10,000 a year
- You are not already a member of a suitable workplace scheme
If you earn less than £10,000 but above £6,240, your employer doesn’t have to automatically enrol you in their pension scheme. However, if you ask to join your employer cannot refuse you and must make contributions on your behalf.
So if you are employed and earn over £6,240 a year, but are not yet making the most of auto-enrolment, make sure you speak to your employer ASAP.
Your quick pension checklist
Every month that passes without taking action on these mistakes could be costing you money in the future. So please make sure you take action ASAP. Here’s a quick pension checklist for you:
- Check your State Pension forecast
- Pay voluntary NI contributions to fill any gaps in the last six years
- If you claim Child Benefit make sure it’s in your name
- If you don’t claim Child Benefit, watch out for the chance to claim your backdated credits
- If you qualify for Carer’s Credit, make sure you claim it
- Check you haven’t forgotten about any old pensions
- Make sure you are making the most of your pension tax benefits
- If you qualify for auto-enrolment, make sure you are on the scheme
