A finance expert has warned that simple errors made by people approaching retirement could be costing them tens of thousands of pounds. With over 15 million people not saving enough for retirement and more than a million pensioners failing to claim benefits they are entitled to, Antonia Medlicott, founder and managing director of Investing Insiders, has identified five key mistakes retirees make and how to fix them.
Withdrawing the Full Tax-Free Allowance Needlessly
Medlicott advises against taking the full 25% tax-free lump sum from a private pension immediately. While you can withdraw up to a quarter tax-free from age 55 (rising to 57 in April 2028), doing so means nearly all your private pension becomes liable to tax, especially when combined with the full state pension, which will soon exceed the Personal Allowance.
She explains: "Anyone with a sizable pot should only withdraw the amount they need and think of the most tax-efficient way to make it last longer." For example, someone with a £200,000 pot withdrawing £20,000 per year (plus state pension) could save over £8,000 in tax by phasing their drawdown compared to taking the full 25% at once and investing the rest at 4% return. The phased approach also extends the pot's longevity to 20 years versus 14 years. For a £300,000 pot, the tax saving exceeds £16,000.
Missing Out on the 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, or £3,582.80 over 10 years. Medlicott recommends paying to make up NI credits, costing £18.40 per week (£956.80 per year), which yields significant long-term benefits.
She highlights a free option: the Specific Adult Childcare Credits scheme. If you care for a grandchild while a parent works, that parent can transfer a credit to you, boosting your retirement income by over £350 per year—almost £9,000 over a 25-year retirement. This can be backdated to 2011.
Failing to Claim Free Allowances and Benefits
Billions are lost by pensioners not claiming Pension Credit. Applications to the Department for Work and Pensions dropped 34% over the past year, with an estimated 910,000 households missing out on up to £4,500 each. Pension Credit tops up weekly income to £238 for singles or £362.25 for couples, can be backdated three months, and unlocks further benefits like Council Tax Reduction, NHS cost help, energy bill support, and a free TV licence for those over 75.
Not Splitting or Announcing a Shared Pension
If one partner enters a care home, the local authority assesses finances. While the home is protected if a partner lives there, savings and pensions are not. Medlicott warns: "If you only have one private pension between you, and it belongs to the person who's gone into care, there is nothing to protect the partner left at home." However, under the Care and Support Regulations 2014, if part of a pension is legally paid to a spouse, that portion is excluded from the means test—often applied as a 50% split. Setting this up before a crisis is crucial.
Leaving Inheritance Tax Planning Too Late
Inheritance tax planning should start early in retirement, not later. Making gifts too close to death triggers the seven-year rule: if you die within seven years, gifts exceeding the £3,000 annual allowance are included in your estate for tax purposes. From April 2027, unused pensions will also be included in the taxable estate. Medlicott advises: "If you have a large pension, factor this into your later years, as this will only penalise you for leaving unused funds to dependants."
