Archived article: This article was correct at the time of publishing. Tax, investments and pension rules can change over time so the information below may not be current.

7 pension traps to avoid

If you don’t manage your pensions effectively then your savings could run out in retirement, and this means you won’t be able to live the life you want to lead when you’re older. It doesn’t have to be that way – don’t fall into the trap of putting off your pension any longer. Just make sure you avoid the seven common mistakes below:

Jason Hollands Jason Hollands
24 August 2015

1: Being complacent with your pension savings. It often costs more than you think to purchase a sufficient income. For example, a 70 year old male wishing to purchase an annuity with a fund of £100,000 would currently only be able to secure a standard annuity income of approximately £6,000 per annum.*

2: Not considering your requirements in retirement. There are various stages to retirement and it is important that your needs are carefully assessed. Retirees often travel more in early retirement with higher annual expenditure, with this reducing in the latter years. However, long-term care is also a consideration if health deteriorates. There may be more to consider than you first think.

3: Underestimating how long you might need an income. Life expectancy is ever increasing and an income may be required for longer than you realise. This is particularly relevant if you have decided to purchase an unsecure income such as drawdown, which needs to be carefully monitored.

4: “I’ll do it tomorrow…” Reviewing a pension plan often becomes a job which is put on the back burner. It is important that your pension plans are reviewed on a regular basis to make sure they are aligned with your long-term objectives. They are an integral part of your retirement and often not having these reviewed regularly means you’ll have less money when you come to retire.

5: Forgetting about old pensions and paperwork. You may have old pension policies which have been forgotten. Although these may be small, or have complicated historic structures, it is important to have these reviewed. They may have more value than you realise, or it may be appropriate to consolidate with your other pension pots so that they are suitably invested.

6: Misjudging your investment options. Your investment options are an imperative part of pension planning. It’s best to ensure your policies are working hard for you over the longer term. You may have limited investment options within your pension wrapper, or just be invested in underperforming funds. Either way, it is vital that your underlying investments are reviewed to ensure they are meeting your specific aims and objectives.

7: Leaving what ultimately happens to your pension to chance. Following the regulatory changes which came into force in April 2015, it is important that you complete a nomination form. This will help to ensure that your pension is paid to the correct person in the event of death. For example, depending on your circumstances, it may be tax efficient to have your children as the beneficiaries of your pension pot rather than your spouse so that it does not fall into his or her estate and become liable for Inheritance Tax on his or her subsequent death.

*Based on a standard annuity with no tax-free cash, 50% spouse’s pension, level in payment and payable monthly in advance. Source: IRESS

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We have the straightforward aim of helping you make the most of your investments and making sure you enjoy life in retirement. For more practical tips and information, such as how to get your existing pensions in shape, you can download our free guide to planning for retirement.

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The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. The decision to access your pension is an important one and will affect your income and possibly your standard of living for years to come. Therefore we recommend that before any decision is made you receive regulated financial advice or pension guidance at This article does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact one of our advisers.