These seven pension mistakes could destroy your retirement

Harvey Jones 17 February 2021

Saving enough money for a comfortable retirement is difficult without making costly financial errors along the way. Here are seven of the biggest mistakes you must avoid, if you want to spend your final years in comfort and ease

1. Putting it off.

It may seem like stating the obvious, but the sooner you start saving for retirement, the better your chances of putting together a decent sum. If you save £100 a month from age 25, you will have £196,857 by 65, assuming your money grows at an average 6% a year. If you delay until 35, you will have just £100,562, even with the same growth rate. That’s half the amount, even though you delayed for just 10 years. Your early contributions are the most important because they have much longer to grow.

 

2. Opting out of a workplace pension.

The auto-enrolment scheme has given millions of employees a pension for the first time. If you pay in 4% of salary, your employer must contribute at least 3%, and tax relief adds another 1%, effectively doubling your contribution. Resist the temptation to opt out, as you are effectively turning down free money and will regret it one day.

 

3. Relying on a windfall.

Instead of saving money regularly, some people cross their fingers and hope something turns up. Some dream of a big inheritance. Others pin their hopes on winning the lottery or becoming rich and famous in some unknown way. Don't bank on it. If the windfall doesn’t come through, you’re in trouble.

 

4. Losing track of old pensions.

Most workers now move from job regularly and collect pension pots along the way, some of which end up lost. It is estimated that around 1.6 million pensions worth £19.4 billion online lie unclaimed, worth an average £13,000 each. Pull together all of your paperwork and put it somewhere safe. If any have schemes gone astray, contact the Pension Tracing Service. 

 

5. Failing to shop around.

All pension schemes have different charges, and this could make a huge difference to what you finally end up with. If you have £100,000 in a pension charging 2% a year, and it grows at 6% a year, you will have £324,340 after 30 years. If your pension charges just 1% instead, you’ll have £432,194 – that’s an extra £107,854. That 1% charging difference has cost you a six-figure sum.

 

6. Drawing your pension too early.

Savers can now draw money from their pensions from age 55, but be careful about taking withdrawals too early. That money has to last the rest of your life, which could mean another 30 years or more. If you deplete your pot too soon, your later years could be a struggle. 

 

7. Falling victim to a scam.

Online pension scammers are dreaming up ever more cunning tricks to dupe people out of their lifetime savings. If you fall victim, your retirement could be in tatters. Avoid anybody offering get-rich-quick schemes. If something sounds too good to be true, it is.

Read more: Is your mental health making you poorer?

Read more: How to be better off in 2021


Keep up with the top stories from Reader's Digest by subscribing to our weekly newsletter