Major changes ahead for UK pensions
Millions of UK adults could be sleepwalking into costly pension mistakes, according to financial education specialists Investing Insiders. With pensions set to fall under inheritance tax rules from April 2027, experts are urging people to take action now to protect their savings.
Antonia Medlicott, Managing Director of Investing Insiders, has highlighted three common pitfalls that could cost savers thousands of pounds. And with the average pension pot at death ranging from £50,000 to £150,000, the stakes are high.
Sticking with poorly performing funds
One of the biggest dangers is leaving money in a default pension fund. Medlicott explained: “Most pension providers will have multiple pension funds for you to invest your money in. Spend time researching the best-performing fund, instead of just opting for the default fund. Our research shows it’s not always the strongest option.”
The numbers speak for themselves. Over a decade, the gap between the best and worst performing funds averages 5.5% per year. For someone contributing the UK average of £2,100 annually, this could mean being £1,155 better off after 10 years simply by switching to a higher-performing fund.
Like with tax refunds, it pays to check the details. A small adjustment today could mean a much bigger return tomorrow.
Withdrawing too early and paying over the odds in fees
The second common mistake is accessing pension savings too soon. Withdrawing before 55 (or 57 from 2028) counts as an unauthorised payment and is hit with a hefty 55% HMRC charge.
For example, someone taking out £30,000 early would be left with just £13,500 after tax. Waiting until retirement age reduces the tax to £4,500, saving £12,000.
Fees are another silent drain. Some providers, like NEST, charge 1.8% on contributions, which compounds into hundreds or even thousands over time.
Just as we help people cut through hidden tax charges, we recommend regularly checking pension fees. It’s your money don’t let it trickle away unnoticed.
Overlooking inheritance tax changes
Perhaps the most overlooked issue is inheritance tax (IHT). From April 2027, pensions will be included in a person’s estate. This means estates worth more than £325,000 could see pensions taxed at 40%, unless passed to a spouse or civil partner.
For instance, if someone dies with an unused £100,000 pension alongside the average estate of £335,000, their heirs could lose £30,000 to IHT.
Medlicott advises making use of the annual £3,000 gift allowance, as well as planning larger gifts under the seven-year rule to mitigate the risk.
Rules around tax and inheritance change often and can feel overwhelming. That’s where Pie comes in: to simplify the jargon, highlight what you can do, and make sure more of your money goes to your loved ones, not the taxman.
Expert warning for savers
Medlicott summed it up: “Pensions are an important part of all of our futures, so it’s important that we are aware of the common mistakes that could lose us money. With some of these being as simple as not withdrawing your pension before a certain age, make sure to keep yourself informed about any future pension changes.”
We couldn’t agree more. Whether it’s pensions, self-assessment, or PAYE refunds, being proactive makes all the difference. Our mission is to put people back in control of their money helping them save time, stress, and unnecessary costs.
What this means for you
The message is clear: pensions are not a “set and forget” product. With tax changes looming, a little attention now can prevent big losses later.
Planning ahead could save you thousands in retirement and make life easier for your family. And if you’d like extra help making sense of the numbers, Pie is here to guide you every step of the way approachable, knowledgeable, and on your side.
