Antonia Medlicott, Managing Director of financial education specialists Investing Insiders, has shared three common pension mistakes you should be aware of
Linda Howard Money and Consumer Writer
05:30, 11 Oct 2025
There are three steps that could protect your retirement income(Image: MoMo Productions via Getty Images)
A financial expert is cautioning people of all ages about common pension blunders and how to correct them for a more secure financial future.
The topic is becoming increasingly important due to forthcoming changes in taxation by the UK Government. This will see pensions included as part of your estate, for the purposes of Inheritance Tax.
Ignorance of these changes, among other factors, could end up costing you thousands of pounds by the time you retire. Antonia Medlicott, Managing Director of financial education specialists Investing Insiders, has shared three common pension mistakes you should be aware of.
Being invested in an underperforming pension fund
Most providers offer a variety of pension funds where you can invest your money. It’s worth taking the time to research the top-performing funds and ensure that’s where your money is being allocated, reports the Daily Record.
You can find out where your pension is invested by reviewing your annual paperwork from a provider, or alternatively, you can log into your online account and check there. Once you’ve located your pension, you can then compare its performance against other accounts.
Switching can be straightforward – many providers allow you to do it yourself via an online account. However, you can always reach out to them for assistance if needed.
It’s projected that over a decade, the performance gap between the highest and lowest decile funds is 5.5 per cent annually. Given that the average pension contribution in the UK is approximately £2,100 per year, this implies an annual benefit of £115.50 if you’re in a top-performing pension fund. Over a span of 10 years, this would amount to £1,155.
Avoid early withdrawal of pension savings
Taking out pension savings before the standard retirement age can lead to hefty tax penalties. HMRC views such withdrawals as ‘unauthorised payments’ and charges a 55 per cent tax charge.
However, waiting until retirement has benefits, such as 25 per cent of your pension pot being tax-free, with the remainder taxed according to its rate band. For instance, if you chose to withdraw £30,000 from your pension pot prematurely, you’d be hit with a £16,500 tax bill.
But holding off until at least 55 would reduce the taxman’s cut to just £4,500, a staggering saving of £12,000.
Don’t overlook Inheritance Tax changes on pensions
From April 2027, pensions will be considered part of a person’s estate and thus subject to Inheritance Tax (IHT). One strategy to mitigate this is to utilise IHT gift rules, which permit annual gift allowances and larger sums of money, provided the donor lives for at least seven years afterwards.
Taking this approach will cut the tax burden following your death, since you’re permitted to give away £3,000 annually tax-free to one individual, plus up to £250 to several different recipients.
This strategy diminishes the total Inheritance Tax liability, as there will ultimately be fewer assets within your ‘estate’. The savings you achieve will depend on both the amount you give away and your existing wealth.
Across the UK, the typical sum remaining in a pension fund upon death ranges from £50,000 to £150,000. Therefore, if someone passes away with £100,000 unspent, and assuming they possessed the national average estate value of £335,000 at death, £30,000 of that £100,000 would be liable for tax.
Antonia told the publication: “Pensions are an important part of all of our futures, so it’s important that we are aware of the common mistakes that could lose us money. With some of these being as simple as not withdrawing your pension before a certain age, make sure to keep yourself informed about any future pension changes, as recent trends seems likely.”
