Finance expert Antonia Medlicott, founder of Investing Insiders, has issued an urgent warning to everyone born before 1970 about common pension mistakes that could cost them thousands of pounds. With over 15 million people not saving enough for retirement and more than a million pensioners failing to claim entitled benefits, Medlicott highlights five critical errors.
Withdrawing Full Tax-Free Allowance Unnecessarily
Medlicott explains that while you can withdraw up to 25% of your private pension tax-free from age 55 (rising to 57 in April 2028), taking the full amount immediately leads to a higher tax bill throughout retirement. For a £200,000 pot, phasing withdrawals could save over £8,000 in tax compared to taking the full 25% at once and investing the rest at 4% return. The pot would last 20 years instead of 14. For a £300,000 pot, savings exceed £16,000.
Missing Out on Full State Pension
To receive the full state pension, you need 35 qualifying National Insurance years. Each missing year reduces your pension by £6.89 per week, amounting to £3,582.80 over 10 years. Medlicott advises paying to make up NI credits at £18.40 per week (£956.80 per year) or using the Specific Adult Childcare Credits scheme, which can increase retirement income by over £350 per year, totaling almost £9,000 over 25 years. This can be backdated to 2011.
Failing to Claim Free Allowances and Benefits
Billions are lost due to unclaimed Pension Credit. Applications dropped 34% in the past year, with 910,000 households missing out on an average of £4,500. Pension Credit tops up weekly income to £238 for singles or £362.25 for couples, and can be backdated three months. It unlocks Council Tax Reduction, NHS cost help, energy bill support, and a free TV licence for over-75s.
Not Splitting Shared Pensions for Care Costs
If one partner enters a care home, the local authority assesses finances. While the home is protected if the other partner lives there, savings and pensions are not. However, under the Care and Support Regulations 2014, if part of a pension is legally paid to a spouse, it is excluded from means testing. Many councils apply a 50% split, but this must be set up in advance.
Leaving Inheritance Tax Planning Too Late
Delaying inheritance tax planning reduces options. The seven-year rule means gifts over £3,000 per tax year are included in the estate if the donor dies within seven years. From April 2027, unused pensions will also be part of the taxable estate, penalizing those who leave funds to dependants.
