How common mistakes are imperilling millions of pensions — and the steps savers should take now
Pension experts warn that predictable errors — from poor timing and high fees to inadequate withdrawal plans — can erode retirement income; five investor “types” show where the pitfalls lie
Millions of Britons risk undermining the income they expect in retirement by making a handful of recurrent mistakes, industry experts say, leaving savers exposed to running out of money, paying unnecessary charges or locking themselves into unsuitable arrangements.
While some retirees will have the security of the state pension — around £12,000 a year — or a final-salary scheme that guarantees income for life, most people will rely heavily on investments and savings they have built up over decades. Two pension specialists who counsel and research retirees say the errors are predictable and, in many cases, avoidable if savers take a few practical actions now.
The mistakes cluster around five themes: starting too late or contributing too little, chasing performance or high-risk strategies without understanding costs, drawing down funds in a way that exacerbates sequence-of-returns risk, ignoring charges and product differences, and failing to get appropriate advice or to regularly review arrangements.
Savers who delayed paying attention to their pension pots often find they must accept higher investment risk or reduced spending to make ends meet. Pension industry figures say regular, consistent contributions harness compound growth and are a key corrective. Employers’ automatic-enrolment arrangements have raised participation, but experts stress the importance of increasing contributions where possible and reviewing expected retirement income against realistic budgets.
Charging structures and product differences can also materially affect outcomes. Platform and fund fees, adviser charges and the cost of some retirement-income products vary widely. Savers who do not take these charges into account can see a significant portion of their pot absorbed over time. Experts urge savers to check annual statements, understand explicit charges and consider consolidating small pots where consolidation reduces fees without triggering other costs.
How pension savings are drawn down in retirement is another major risk. Drawing large sums early in retirement can expose a portfolio to adverse market movements — the so-called sequence-of-returns risk — increasing the chance that a saver will deplete capital too soon. Industry specialists recommend a disciplined withdrawal strategy, stress-testing retirement plans for a range of market conditions and, where appropriate, combining guaranteed income products with a flexible drawdown element to balance security and growth.
Investment behaviour also shapes outcomes. Some savers are prone to switching funds in response to short-term market headlines or to chasing recent high performers. This behaviour can lock in losses or increase trading and platform costs. Financial professionals advise maintaining a diversified, long-term asset allocation aligned to an individual’s risk tolerance and retirement horizon, with periodic rebalancing rather than frequent tactical shifts.
The human element underpins many of these technical pitfalls. Two pension commentators highlighted five broad investor “personality types,” each with characteristic strengths and vulnerabilities. One adviser described clients who are highly cautious and prioritise guaranteed income; they often avoid risk but can erode real income through overreliance on cash or low-yield products. Another group is self-directed savers who manage investments themselves and may underappreciate charges or the need for diversification. A third set are confident risk-takers who chase high returns and can be exposed to large losses at inopportune times. Other types include those who react to market noise and those who are complacent, assuming the state pension or workplace plan will be sufficient without active management.
Matthew Sellens, managing director at a St James’s Place partner practice that helps clients transition to living on their investments, and Tom Selby, director of public policy at DIY platform AJ Bell, have both urged savers to match retirement strategies to their temperament and financial circumstances. They emphasise that different approaches suit different people but that all savers benefit from clarity on fees, timelines and realistic income needs.
Practical steps recommended by practitioners include checking pension statements for projected income, assessing total charges and benchmarking them against alternatives, ensuring appropriate diversification, modelling drawdown strategies under stressed scenarios, and seeking regulated advice when facing complex choices or large pots. For those nearing retirement, advice can help decide between annuities, guaranteed drawdown products and flexible drawdown, taking account of longevity, tax implications and legacy objectives.
Regulatory and market developments have broadened options for retirees, but they have also introduced complexity. The expansion of drawdown options and retirement products makes individual decision-making more consequential. Policy experts and advisers reiterate that regular reviews of pension arrangements — ideally on an annual basis or at major life events — can catch problems early and allow corrective measures such as increasing contributions, adjusting asset allocation or consolidating pots.
Savers who are unsure where they fit among the common investor types can begin by listing priorities — income security, growth, simplicity or control — and then compare those priorities with product features and fee structures. The industry view is that aligning the retirement plan to an individual’s tolerance for risk and income needs, while keeping costs and tax implications under control, materially improves the odds of achieving a sustainable retirement income.
For many households, the combination of state pension, workplace provision and private savings will determine retirement living standards. By identifying the predictable mistakes and taking the recommended steps now — reviewing contributions, understanding charges, choosing a sustainable withdrawal approach and, when appropriate, seeking professional advice — savers can reduce the likelihood that their pension will run on a “slippery slope” in later life.