The Pension Pitfalls That Could Cost You Thousands – And How to Avoid Them

Pensions might appear straightforward, but neglecting the details can cost you dearly over time. From missing out on valuable tax relief to losing track of old pension pots or failing to plan for death benefits, the consequences of poor pension planning can quietly erode your retirement wealth.

The numbers speak for themselves. For a basic-rate taxpayer, a £1,000 pension contribution only costs £800 thanks to 20% tax relief added by the government. For higher-rate taxpayers, a further 20% can be claimed via self-assessment, saving a further £200.

Over time, these tax advantages—combined with tax-free investment growth and the ability to take 25% of your pension tax-free at retirement—can significantly boost your retirement income.

But only if you make the most of them.

In this blog, we highlight the most common pension pitfalls—such as delaying contributions, forgetting old schemes, paying excessive charges, and withdrawing funds inefficiently—and show you how to avoid them. With a few informed decisions, you can protect and potentially increase your retirement savings by tens of thousands of pounds.

1. Neglecting Your Pension Early On

The days of generous defined benefit pensions are largely behind us, so building up your retirement fund is more important than ever. One of the costliest mistakes is delaying contributions.

Using Vanguard’s pension calculator and assuming an 8% annual growth rate, here’s how much a fixed monthly contribution of £300 could grow by age 67:

This shows how starting ten years earlier can nearly double your pension pot. Even modest contributions can go a long way when considering tax relief and compound growth.

For example, if £150 of your £300 contribution is your own money and you’re a basic-rate taxpayer, the cost is just £120.

That’s £30 added by the government. Over 42 years, this “free money” adds up: £15,120 in tax relief becomes around £45,015 with growth at 8%. If you delay until 55, the same tax relief is worth just £5,492—a £40,000+ difference.

2. Losing Track of Old Pensions

It’s common to accumulate multiple pensions throughout your working life, particularly if you’ve changed jobs. However, losing track of these can be costly. Forgotten pensions may be held in poorly performing funds, charged excessive fees, or not reflect your current needs or beneficiaries.

They may also not offer flexible death benefit options such as beneficiary drawdown, or your nominations could be outdated, meaning your loved ones might not receive what you intended.

How to avoid it:

  • Use the Government’s Pension Tracing Service to track down old schemes.

  • Consider consolidating pensions into a single, well-managed scheme—but always seek financial advice first, as some older pensions offer valuable guarantees.

3. Underestimating How Much You Need

Planning for retirement requires more than guesswork. Many people underestimate how much they’ll need, especially as life expectancy increases and inflation erodes purchasing power.

Here's what happens when you build in inflation-linked increases to your contributions:

In this example, someone starting at 25 could add over £100,000 more to their pension fund by increasing contributions annually with inflation.

Tip: Review your contributions regularly and consider working with a financial planner to model your future lifestyle needs, factoring in inflation, life expectancy, and potential care costs.

4. Taking Too Much Too Soon

With pension freedoms introduced in 2015, the temptation to access your pension early has grown. But taking too much, too early, can be a costly mistake.

Withdrawing large sums can push you into a higher income tax bracket, reduce future investment growth, and risk running out of money later in life.

Other risks include:

  • Market volatility affecting early withdrawals.

  • Reduced access to means-tested benefits.

  • Triggering the Money Purchase Annual Allowance (MPAA), limiting future contributions.

How to avoid it: Work with a planner to develop a sustainable withdrawal strategy that balances your income needs with long-term tax efficiency.

5. Ignoring Pension Charges and Poor Investment Choices

Not all pension schemes are created equal. High charges and poor investment performance can significantly erode your fund’s growth potential.

Let’s say you have a fund of £100,000 with annual charges of 2% versus 0.5%. Over 20 years, assuming 5% growth before charges, the lower-fee option could result in £43,000 more in your pot.

How to avoid it:

  • Review your pension’s investment performance and fees regularly.

  • Don’t assume default funds are right for you.

  • Choose a mix of investments aligned with your risk tolerance and goals.

6. Missing Out on Tax Planning Opportunities

Effective pension planning doesn’t happen in isolation. It’s part of a wider financial strategy that should consider other tax-efficient vehicles like ISAs, Venture Capital Trusts (VCTs), and Enterprise Investment Schemes (EISs).

For higher earners, combining these can help reduce your tax liability while creating flexible retirement income streams.

How to avoid it:

  • Maximise your annual pension allowance and carry forward unused reliefs.

  • Diversify tax wrappers to improve flexibility in retirement income planning.

7. Not Planning for Death Benefits

Many forget that pensions typically sit outside your estate for inheritance tax purposes. But without an up-to-date expression of wish forms, your pension may not go where you intended.

Some older pensions may only pay out as a lump sum or restrict who can inherit. Beneficiary drawdown options vary between providers.

How to avoid it:

  • Review and update your expression of wish forms regularly, especially after life changes like marriage, divorce, or having children.

  • Understand how your scheme handles death benefits and consider moving to a more flexible plan.

Conclusion

The title of this blog might sound sensational, but the truth is clear: without careful planning, pensions can become a minefield that costs you thousands—or even tens of thousands—over your lifetime.

The good news is that most of these pitfalls are avoidable. With the right advice and regular reviews, your pension can become one of the most powerful tools in your long-term financial plan.

At Ifamax Wealth Management, we’ve been helping clients plan confidently for retirement for over 20 years. If you’d like to ensure your pension is working as hard as it should, get in touch today and let’s help you take control of your retirement journey.

 

Risk warning

This article is distributed for educational purposes only and should not be considered investment advice or n offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product. Reference to specific products is made only to help make educational points and does not constitute any form or recommendation or advice. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

 

Ashton Chritchlow