Financial expert issues tax trap warning for retirees | Personal Finance | Finance

With data showing more than 15 million people are not saving enough for retirement and more than a million retirees are not claiming the benefits they are entitled to, a financial expert has warned of simple mistakes people are making as they approach their older years that could cost them tens of thousands of pounds.

Government Pensions Commission Announced its preliminary report in May 2026 that women, the self-employed, and those with lower and middle incomes are not putting aside enough money for retirement. It also warned of the potential retirement ‘cliff edge’ for up to 19 million people unless action is taken.

Antonia Medlicott, founder and chief executive of financial education specialists, to help Investing in InsidersHe presented the five biggest mistakes retirees aren’t even aware of and explained how to fix each one.

Unnecessary withdrawal of the full tax-free allowance

“From age 55 you can withdraw up to a quarter of your private pension tax-free, this figure will rise to 57 in April 2028, but if you take out the full 25 per cent tax-free immediately this will mean a heftier tax bill for your entire retirement. “Assuming you take out the full state pension that will pass through the Private Allowance next year, almost all of your private pension will be taxable.

“Anyone with a large pot should only withdraw the amount they need and, circumstances permitting, consider the most tax-efficient way to make it last longer so their pension can last longer in later years.

“Someone with a private pension pot of £200,000 and withdrawing £20,000 a year, enough to get by on a state pension, could save more than £8,000 in tax by staggering their deductions, compared to someone who withdraws the full 25 per cent tax-free at once and invests the rest at a return of 4 per cent a year. The pension pot will also last 20 years due to the extra growth. 14 for those withdrawing fully.” year, someone with a pot of £300,000 will save over £16,000 in tax.

Missing out on your full state pension

“To get the full State pension, you need to have 35 eligible years on your National Insurance record. If you haven’t reached this amount, your pension will lose £6.89 per week per short credit, or an average of £3,582.80 every 10 years. If you’re approaching retirement or already retired, it’s worth considering paying to make up for National Insurance credits, which is £18.40 for a week (£956.80 for a full year) and a significant difference in the long term.” creates.

“There are ways to get more national insurance credits for free. A government scheme called Special Adult Childcare Credits means that if you look after your grandchild while a parent is working, that parent can transfer a credit to you, which will increase your retirement income by more than £350 a year. Over 25 years of retirement this is almost £9,000. This can also be backdated to 2011.”

Not being able to benefit from free allowances and aids

“Pensioners across the country are losing billions of dollars by not claiming Pension Credit. In fact, there was a 34 per cent drop in the number of Pension Credit applications submitted to the Department for Work and Pensions last year, with an estimated 910,000 pensioner households missing out on a loan that could have been worth an estimated £4,500 to them.”

“Pension credit is added to your weekly income if your weekly income is under £238 if you’re single, or under £362.25 with a partner. It’s retroactive for up to three months and is easy to apply for.”

“This could also unlock further benefits including Council Tax Reduction, help with NHS costs and energy bills and even a free TV license for those over 75.”

Not dividing or announcing the pension

“If you or your partner need to go into a care home, the local authority will carry out a financial assessment to determine how much you will contribute. If one of you continues to live at home, your home is protected under the Care Act 2014, but savings and pensions are not.

“If there is only one private pension between you and it belongs to the person receiving care, there is nothing to protect the stay-at-home partner.

“But many people are unaware of a special rule set out in the Care and Support (Charge and Valuation of Resources) Regulations 2014 which says that if part of the pension is legally paid to a spouse or civil partner, that part will be excluded from the means test entirely. Many councils apply this as a straightforward 50 per cent split, but this needs to be arranged by someone. This is much easier to solve before a crisis than during a crisis.”

Leaving inheritance tax planning too late

“It’s never too late to start inheritance tax planning, but leaving it until later reduces your options and will benefit the state more if you approach it earlier in retirement.

“Many people put off making financial gifts to their families and decide to do so later in retirement. But be careful about waiting until it’s too late, as the seven-year rule means that if you die within this time, anything given more than the £3,000 deduction per tax year will legally be included in your estate for inheritance tax.

“Remember that from April 2027 unused pensions will also flow into your taxable estate, so if you have a large pension, include this in your later years as this will only penalize you for leaving unused funds to dependents.”