Pension savers have been warned of three common mistakes that could cost them thousands of pounds in the long run, according to financial education specialist Antonia Medlicott, managing director of Investing Insiders. She emphasised the importance of reviewing investment accounts, avoiding early withdrawals, and checking fees to ensure the best possible retirement.
Medlicott advised savers to research the best-performing fund rather than opting for the default option. She noted that over ten years, the performance gap between the best and worst funds can be 5.5% per year. With an average annual pension contribution of £2,100, choosing a higher-performing fund could yield an extra £115.50 per year, or £1,155 over a decade.
Withdrawing pension savings before the age of 55 (rising to 57 from April 2028) can result in severe tax penalties. Medlicott explained that early withdrawals are treated as unauthorised payments, incurring a 55% tax charge from HMRC. In contrast, waiting until retirement allows 25% of the pension pot to be taken tax-free, up to a cap of £268,275.
High investment fees can also significantly reduce pension pots. Analysis from Vanguard shows that reducing annual fees from 1% to 0.5% could add at least £59,000 to a retirement pot over a career. For example, a saver earning £37,500 and contributing £250 monthly from age 25 to 66 could accumulate £465,000 with a 0.5% fee, but only £406,000 with a 1% fee, and £355,000 with a 1.5% fee.
