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Five biggest retirement planning mistakes you can make - save your pension from tax

Daily Express logo Daily Express 04/12/2021 Mark Oldacres

Planning for retirement and saving sufficiently into a is vital as it ensures people will have enough money to live a comfortable lifestyle once they stop working, and having no plan in place is one of the biggest mistakes you could make. Despite this, the FCA's Financial Lives 2020 survey showed that in February of last year, only 70 percent of non-retirees had a pension in accumulation.

To help Britons get on the right track toward a sizeable pension pot and an enjoyable retirement, Olivia Kennedy, financial planner at Quilter spoke exclusively to and detailed the five biggest mistakes people can make when planning for their post-working life.

Relying solely on the state pension

Britons receive a state pension when they retire to help support their cost of living, but Ms Kennedy was quick to remind people this will not be enough to cover all of their expenses in retirement.

She said: "When considering your future finances, one of the biggest mistakes you could make would be to rely solely on the state pension.

"Even if you are eligible to receive the full state pension, which is currently £179.60 per week for the 2021/22 tax year, it is far below what most people consider to be enough to support their retirement and you would therefore need additional funds to supplement it."


pension plan mistakes © GETTY pension plan mistakes

Opting out of auto-enrolment

"If you have previously chosen to opt out of auto-enrolment, it would be wise to reconsider as you are likely missing out on valuable retirement benefits.

"Not only would you be missing out on your own savings towards your retirement, but you would also lose generous employer contributions. Additionally, when saving into a pension pot, you receive tax relief.

"If you have opted out, more of your money will be going to the Government as tax as opposed to being saved into your own pension pot.

"You could also miss out on other important benefits such as a pay out from your pension scheme if you were to fall ill and become unable to work prior to your retirement date, as well as any benefits the scheme would pay to your dependents if you were to pass away unexpectedly."


Delaying saving

Ms Kennedy believes that not starting to save early enough for retirement is one of the key mistakes people can make, as they will often put it off until later in life.

She said: "Some people consider saving from a young age to be unnecessary, but it is in fact one of the most important times to be contributing as that money will get the most bang for its buck thanks to potential long term investment returns."

Data from Quilter showed that someone making a £100 a month contribution to their pension starting at the age of 40 would accumulate a pot of just over £24,000 by the age of 55, assuming the pot grows by five percent per year.

In comparison, someone saving the same amount per month at the same growth rate, but starting from the age of 25 would save over £68,500.

Ms Kennedy said: "An extra 15 years of saving has the ability to nearly triple your pension pot, so delaying saving could have a substantial impact on your financial stability in retirement."

what is state pension © Express what is state pension

Saving only the minimum amount into a default fund

Most British workers are enrolled in their company pension scheme, but in many cases, they may only be contributing a small percentage of their earnings. Ms Kennedy explained how this could be reducing the size of people's pension pots down the line.

She said: "Saving only the minimum amount into a default fund is another key mistake often made as you are unlikely to achieve the best possible returns on your investment.

"It is a good idea to pay more than the minimum amount required into your pension to ensure you are able to build up a substantial pot to support the retirement you would like to have."

The maximum amount Britons can contribute to their pension each year is quite large, as people can benefit from tax relief on pension contributions up to the annual allowance of £40,000.

Ms Kennedy explained how by taking responsibility for where their pensions are invested, people could give their retirement savings a healthy boost.

She said: "Many people are unaware of how their pensions are invested and while it may be easy to remain in the default fund, performance can vary substantially across different investments.

"Even a small difference could significantly increase the size of your pension pot so it is a good idea to make sure you understand where your money is invested to ensure it is in the right fund for you.

"If possible, you should seek financial advice to ensure you are making the best possible decisions for your personal circumstances and retirement plans.

"A financial adviser will be able to support your decision making and could help you gain more substantial returns with lower risks than you might otherwise have been able to achieve, such as through investing in a diversified, risk-based multi-asset portfolio."

retirement plan warning pension tips uk © GETTY retirement plan warning pension tips uk

Self-employed not planning for retirement

"The self-employed miss out on the boost provided by auto-enrolment, so it is important that they do not ignore saving for retirement.

"Ideally, they should begin planning for retirement as early as possible to avoid the mistake of not having a substantial enough retirement pot by the time they are ready to stop working.

"Additionally, as the self-employed lose out on the generous top ups from employers, saving as much as they can towards their pension will help ensure they are financially stable in later life.

"Research from the PPI showed that only 15 percent of the five million self-employed people in the UK were saving into a private pension in 2019. If you are self-employed, it would be a mistake not to plan for retirement.


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