Finance expert Antonia Medlicott, founder of Investing Insiders, warns that pensioners are losing thousands of pounds due to simple, avoidable mistakes. New data shows 15 million people are not saving enough for retirement, and over one million pensioners fail to claim benefits they are entitled to.
Withdrawing Full Tax-Free Allowance Needlessly
Pensioners can withdraw up to 25% of their private pension pot tax-free from age 55 (rising to 57 in April 2028). However, taking the full 25% immediately leads to a higher tax bill throughout retirement. Medlicott explains: "Nearly all your private pension will be liable to tax, presuming you receive the full state pension, which next year will pass the Personal Allowance."
For example, someone with a £200,000 pot withdrawing £20,000 per year combined with state pension could save over £8,000 in tax by phasing drawdown instead of taking the full 25% upfront and investing the rest at 4% return. The phased approach makes the pot last 20 years versus 14 years. With a £300,000 pot, tax savings exceed £16,000.
Missing Out on Full State Pension
To receive the full state pension, 35 qualifying National Insurance years are needed. Each missing year reduces weekly pension by £6.89, equating to £3,582.80 lost every 10 years per missing credit. Paying to make up NI credits costs £18.40 per week (£956.80 per year) and significantly boosts long-term income.
The Specific Adult Childcare Credits scheme allows grandparents caring for grandchildren to receive NI credits from the parent, increasing retirement income by over £350 per year. Over a 25-year retirement, that's nearly £9,000. 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% in 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 Council Tax Reduction, NHS cost help, energy bill support, and free TV licences for over-75s.
Leaving Inheritance Tax Planning Too Late
Delaying inheritance tax planning reduces options. The seven-year rule means gifts exceeding the £3,000 annual allowance are included in the estate if the donor dies within seven years. From April 2027, unused pensions will also be included in the taxable estate, penalizing those leaving large pension funds to dependants.
Not Splitting a Shared Pension
If one partner enters a care home, the local authority assesses finances. Under the Care and Support Regulations 2014, if part of a pension is legally paid to a spouse or civil partner, that portion is excluded from the means test. Many councils apply a 50% split, but this must be set up in advance. Medlicott advises sorting this before a crisis.
