Investors are missing out on better pension savings due to a range of barriers that could be easily overcome or avoided.
The hurdles identified by a 2024 Institute and Faculty of Actuaries study could cost people up to £300,000 in pension savings, it estimated. Earlier this year, Pensions UK said that even small changes to the way that many of us approach retirement savings could produce significant benefits. It reported a disconnect between awareness and action, with many people understanding they could do more to boost their retirement provision but not knowing exactly what they could do.
So, for Pension Awareness Week 2025, here are some of the barriers standing between many of us and the comfortable retirement we want – and how to remove them.
Not contributing enough
It’s no secret that most of us need to pay more into our pensions. Just 43% of households have adequate pension savings, according to the latest Hargreaves Lansdown Savings and Resilience Barometer. But half of savers have never considered increasing their workplace pension contributions and almost three in 10 didn’t know how they could go about doing so, Pensions UK found.
Action
Even a very modest increase in regular pension contributions could have an outsized impact on the value of your pension, due to the snowball effect of compounding, which can boost your savings. Also, many employers match your contributions, which means that when you pay in more, so will they. Failing to take advantage of the chance to pay an extra 1% of salary into their pension could cost someone up to £100,000 over 40 years, partly due to missing out on the extra ‘matching’ employer’s contribution.
All you have to do is tell your employer – through your manager or the HR department – the percentage of earnings you want to contribute each month, and it’ll look after the rest of the process.
Delaying saving for later life
Retirement might be a long way off if you’re in your 20s or 30s, but your older self will be very grateful if you’re able to start saving as early as possible. For instance, waiting until 35 to begin paying into a pension could result in a pension pot of £500,000 at retirement – not bad, but £300,000 less than if you start at 25. Choosing to opt out of a pension (which is an option under automatic enrolment) for five years could cut your pension pot by around £100,000.
Action
We explain why each year of additional savings – even if it’s just a few quid a month – can add up to a lot of extra money by the time you retire. Drip-feeding your money enables even small regular investments to build up significantly over time. As we’ve already noted, workplace pensions can be particularly valuable, due to the employer contribution. So, if you’re automatically enrolled into your employer’s pension scheme, there’s a case for viewing it as money gained rather than lost.
Being too cautious
One benefit of starting early is that you can afford to take more risk with your pension investments and block out the noise of short-term volatility. In fact, if you’re at least more than five years from retirement you have time to take more risk in pursuit of higher returns. But many investors are too risk averse; research by PensionBee found that just 8% of pension savers are willing to invest in high-risk assets, with 44% favouring either low-risk strategies or no risk at all.
Action
If you’re still at least a decade from retirement but still have a big chunk of your pension savings in low-risk assets such as cash and bonds, you may be missing out on a lot of investment growth unnecessarily – and that could make a big difference in later life. A well-diversified portfolio can still give you plenty of exposure to the higher risk funds and assets that produce higher rewards over time.
Paying too much
High costs and charges ultimately eat into the size of the pot you get at retirement, even if the differences are marginal. Over a working lifetime (46 years), a 1% annual charge can reduce the value of a defined contribution (DC) pension pot by a quarter, according to the Department of Work and Pensions. This rises to more than a third when charges are levied at 1.5% of the pot. Costs can also add up when your pensions and investments are held in different places, as you’ll be paying multiple sets of management or administration fees.
Action
Transfer and/or consolidate your pots. Costs have come down in recent years, with many charging 0.5% or less. If your money is in older schemes (i.e. those taken out 20 or more years ago), you may well be paying more than you would for a newer scheme. Explore your transfer options but look out for potential exit charges or valuable benefits that might be lost.
Consolidating your DC pension pots into one bigger plan can lower your costs, make them easier to manage and give you more investment control. You can also consolidate your ISAs and other investments by bringing them onto one platform, in order to cut costs and help you manage them more easily. Use our free and easy-to-use investment platform comparison tool to find the best platform for your needs.
Neglecting your pension plans
Yes, we’ve already said that you can afford to block out the noise and resist making knee-jerk changes. But if you don’t look at your retirement investments at least annually you risk inadvertently paying money into a plan that’s not invested as effectively as you hoped. This could result in poor funds dragging performance down over long periods or your portfolio no longer reflecting your risk appetite or objectives.
Action
Review your pension savings and investments at least once a year to check your portfolio is still on track to meet your needs in later life. Look out for funds that might be chronically underperforming and to ensure your portfolio is sufficiently diversified and in line with your risk profile and goals. This article identifies a few things to consider when reviewing your investments.
Image by Freepik Pikaso
