As inflation continues to soar and erode cash savings, it is important for those approaching retirement to ensure they are taking all the steps to maximise their pension pots.
By sidestepping these common mistakes, Britons could take their pension planning to another level and reduce the risk of falling short of money later.
Brian Byrnes, head of personal finance at Moneybox, spoke exclusively with Express.co.uk about these “little known mistakes” that can cost people thousands in their retirement. He suggested how Britons can make sure they “have enough” if they want to retire.
He said: “Learning how to take control of your retirement savings early in life can make it much easier to save what you will need in the long term, thanks to the benefits of compounding.
“According to recent Moneybox research, nearly four in 10 people have lost track of some or all of their old workplace pensions.
“In fact, the Pension Policy Institute recently revealed that there are more than 1.6 million lost pensions in the UK totalling £19.6 billion.
“While it can be hard to keep track of all your old pension pots, knowing how your retirement savings are invested and the fees you’re paying, can make a big difference to the value of your final pension pot when you retire.”
More people today are enrolled in a workplace pension scheme than ever before, thanks to auto-enrolment.
Since 2018, it’s been a legal requirement for all employers to set up a workplace pension and enrol their eligible employees into it, unless those employees choose to opt-out.
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This means that if someone has had a job in the last few years, there’s a good chance they’ll have a workplace pension to go with it.
With the average millennial worker estimated to have 12 jobs over the course of their career, it is hard to keep track of all individual workplace pensions.
The Association of British Insurers (ABI) estimates £19.4billion worth of savings are being misplaced or forgotten about, comprising 1.6 million pots with an average size of £13,000.
Moneybox research found only 35 percent of UK adults know how much they need to save for their ideal retirement.
Many people do not know that this should be the first step of retirement planning, and not knowing can be costly later down the line.
Mr Byrnes continued: “In terms of ‘how much is enough’, there is a good rule of thumb to use; most people will need about 25 times their retirement expenditure as a pension pot.
“So if you plan to spend £15,000 a year, you will likely need a pension pot of £375,000 to provide that income. Try not to be daunted by the big numbers.
“A big advantage of planning for retirement early is that your efforts are boosted by tax relief and employer contributions. It’s essentially free money that rewards your efforts, no matter how small, and this coupled with consistent habits, little and often, add up to big results over a career.
“Contribute at least 10 percent of your pay cheque, get your employer to match as much of your contribution as possible, and take advantage of tax relief and tax-free growth. Over 30 years these all can have a big impact!”
Another common mistake is to assume the state pension will meet one’s retirement needs.
However, the state pension won’t be available until one’s late 60s and it may not go very far.
Currently, the new flat-rate state pension is £185.15 a week, or just over £9,600 a year. To put that in perspective, a full-time job on Minimum Wage (37.5 hours a week), would give someone around £18,500 a year (before tax).
If people think they’d struggle on minimum wage, there’s every chance the state pension may not cover all their needs.
However, it should be noted the state pension and minimum wage are set to rise in April.
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