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Planning for retirement can be a daunting process, and avoiding common pension mistakes is crucial if you want to ensure your savings are working as hard as they possibly can for you.
Most people saving for retirement are saving into what’s known as defined contribution, or money purchase pensions. The amount you receive in retirement from this type of pension depends on how much you (and your employer if you belong to a workplace scheme) contribute, and on how your investments perform.
This means that you need to think particularly carefully about how you manage and access your pension pot. Failing to make the most of your investment options, for example, or being charged too much, are a couple of the mistakes you could be making that’ll cost you in the long run. You can find out more in our guide What is a defined contribution pension?
In this article, we run through six of the biggest pension mistakes that people often make, and how to steer clear of them.
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If you’re considering seeking professional financial advice on the options available to you, nationwide advice firm HUB Financial Solutions is offering you a free initial consultation with an expert retirement specialist. There’s no obligation; it’s to help you understand your options and how our services work. If you choose to receive paid-for regulated advice, we’ll explain how that works and the fees involved.
HUB Financial Solutions is rated ‘Excellent’ on Trustpilot (Mar 2026). With investing, your capital is at risk.
1. Drawing your pension too early
You can usually access your pension savings from the age of 55 (rising to 57 in 2028) under current rules, but that doesn’t mean you should start taking money out at this point. You can take up to 25% as a tax-free cash lump from your pot from this age, which might be tempting if you’re in need of a cash boost.
However, remember that any money you take from your pension early could potentially miss out on investment returns over the years ahead. Leaving your pension pot untouched for as long as possible will hopefully give your money more time to benefit from tax-free growth, although of course there are no guarantees. Learn more in our guide Should I take a tax-free lump sum from my pension?
If you’re struggling to cover high living costs, see if you can reduce your spending or access other savings rather than dip into your pension. Learn more in our article Four big risks of dipping into your pension.
2. Failing to consider tax on pension withdrawals
Any withdrawals over your 25% tax-free cash lump sum are considered part of your income and will therefore be taxed at your marginal rate. This means that the value of your withdrawal will be reduced by the tax you pay, and could potentially also push you into a higher rate tax bracket. Read more in our article How much tax will I pay when I withdraw my pension?
As a result, it’s important to make sure you do your sums and have fully considered the tax implications of any pension withdrawals you may be considering. A financial advisor can help you to decide on a suitable withdrawal rate based on various factors such as your age, lifestyle, and market conditions.
If you withdraw more than your tax-free 25%, you’ll also reduce your Annual Allowance from £60,000 to £10,000, which is the amount you can contribute to your pension each year and still benefit from tax relief. Once this is reduced, it becomes known as the Money Purchase Annual Allowance (MPAA) rather than the Annual Allowance.
If you’re still paying into your pension and hoping to build up your retirement fund, having a smaller allowance could be a major disadvantage in the long run. Find out more in our article What is the Money Purchase Annual Allowance?
3. Not saving enough for retirement
Many of us aren’t saving enough for retirement. While many more people are paying into a workplace pension under the government’s auto-enrolment scheme, plenty are only paying the minimum allowed. This minimum is 8%, typically split as 3% from your employer and 5% from you. Unfortunately, without other savings in place, this is unlikely to be sufficient for a comfortable retirement. Read more about auto-enrolment in our article How does pension auto-enrolment work?
According to the Pensions and Lifetime Savings Association (PLSA), for example, to achieve a moderate standard of living in retirement, a couple sharing costs and each receiving the full State Pension (£11,973 a year in the 2025/26 tax year) would need a combined income of around £43,900 a year, or £31,700 if they were single. Read more in our articles How much should I save for retirement? and Can you afford to retire?
It’s not always easy to increase the amount you’re saving, particularly when living costs are rising. However, there are simple ways to top up your pension that you might not have thought of, such as increasing your workplace pension contributions, or topping up your State Pension. If you’re an employee, see if your company will pay more into your pension, or start paying into a private pension if you’re self-employed. You can read more about these in our article 11 simple ways to top up your pension.
4. Paying too much in charges
Knowing how much you are paying in pension charges is a vital part of retirement planning, as the amount you pay can make a huge difference to the eventual size of your pension pot. Charges typically cover the cost of your provider managing and administering your pension, and investing your contributions into the stock market.
There is a cap of 0.75% on annual management charges for workplace defined contribution pensions under auto-enrolment rules. However, if your pension was in place prior to the introduction of auto-enrolment in 2012, the charging cap doesn’t apply. Typically, the older your pension scheme, the higher the annual management charge will be, with fees that in some cases can amount to as much as 2% of your pension’s value each year. Read more in our article What pension charges am I paying?
Annual management charges for pension schemes have been falling over recent years, since the introduction of the charging cap. These days, annual charges of 1-2% are considered expensive, so if you’re paying this amount, it may be worth considering moving your pension to a cheaper plan.
Over 15 years, opting for the cheapest self-invested personal pension (SIPP) provider could save someone with a £250,000 pot almost £22,000 in fees, according to consumer organisation Which? This is a huge amount when you’re trying to make your money go as far as possible in retirement. However, transferring pensions is not without risk, so you should seek advice before proceeding. Find out more in our guide Should I transfer my pension?
5. Sticking to your workplace ‘default’ pension fund
Many pension savers find that their contributions into their workplace pension scheme are automatically invested into a standard ‘default fund’ unless they’ve chosen a different option.
This will usually invest in a mixture of assets, with the investment approach changing as you near retirement, using a process known as ‘lifestyling’. You can find out more about this in our article What is pension lifestyling? For example, you may find you’re mainly invested primarily in shares if you’re a decade or more away from retirement, but a greater proportion of your pot will shift into lower risk investments such as bonds or cash as you get closer to stopping work to reduce your investment risk. Find out more in our article Where is my pension invested?
However, your workplace default fund may not necessarily be the best option for you, and the right pension investments for you will depend on your approach to risk, your age, and your retirement goals. You may be comfortable taking more risk, particularly if you’re some way off retiring. Besides, many people plan to stay invested into retirement using drawdown so are willing to continue accepting a level of risk in the hope they’ll end up with a higher retirement income. Read more in our article Approaching retirement? Here’s what you can do with your pension.
6. Not considering future rule changes
Pension rules rarely stay the same for long, so it’s worth giving some thought to any impending changes (usually announced in the Budget) and whether they might affect your financial plans.
For example, currently, pensions can be passed on free from inheritance tax (IHT), so you might currently be using other savings to cover spending whilst leaving your pension intact. However, as announced in the 2024 Budget, this is set to change from April 2027, when pensions will be brought into the scope of inheritance tax for the first time.
As a result, this might mean pensioners may be more inclined to draw down their pension pots during their lifetime, rather than preserving them for inheritance purposes. This could potentially lead to growing demand for other tax-efficient savings vehicles, such as ISAs.
Read more about pensions and inheritance tax in our guide Can my pension be used to reduce inheritance tax? and about ISAs as a way of saving for retirement in our article Is it better to save into an ISA or a pension?
Where to seek advice
Ensuring that you’re on track for a comfortable retirement can be a challenging process. It’s important to seek financial advice and learn about the mistakes and risks involved when you’re managing and withdrawing your pension.
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If you’re considering seeking professional financial advice on the options available to you, nationwide advice firm HUB Financial Solutions is offering you a free initial consultation with an expert retirement specialist. There’s no obligation; it’s to help you understand your options and how our services work. If you choose to receive paid-for regulated advice, we’ll explain how that works and the fees involved.
HUB Financial Solutions is rated ‘Excellent’ on Trustpilot (Mar 2026). With investing, your capital is at risk.
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