Pension experts have highlighted several common mistakes that could be costing savers substantial amounts, potentially tens of thousands of pounds. These errors include not keeping track of pension paperwork, failing to maximise employer contributions, and not claiming all eligible tax relief.
The Pension Tracing Service estimates that £31 billion is currently held in lost pension pots. Losing track of a pension can occur if paperwork containing contact details for providers and policy numbers is misplaced. Steve Webb, a partner at LCP pension consultants, noted that those who retain paperwork have a significantly better chance of locating old pensions.
Another area where savers are missing out is pension tax relief. Webb's Freedom of Information request revealed that approximately 800,000 people did not claim higher rate pension tax relief in 2023/24, amounting to over £1 billion. This often happens because individuals are unaware of the different methods for delivering pension tax relief.
Furthermore, transferring a defined benefit (DB) pension into a defined contribution (DC) pension can lead to the permanent loss of guaranteed benefits, such as an income for life with inflation protection. Daniela Silcock, director of Daniela Silcock Pensions Research, explained that poor returns or high withdrawals from a DC pension could result in the money running out.