State pensioners receiving payments from the Department for Work and Pensions (DWP) have been warned over eye-watering £100,000 losses for certain errors.
State pensioners face pension reduction if they make one mistake
State pensioners face a State Pension reduction if they make one mistake. State pensioners receiving payments from the Department for Work and Pensions ( DWP ) have been warned over eye-watering £100,000 losses for certain errors.
Opting out of a pension is seen as one of the biggest mistakes – because opting out for 5 years could cause a £100k reduction in pension pot, according to personal finance experts.
The Institute and Faculty of Actuaries (IFoA) warned: “For a typical person, not taking advantage of extra contributions of 1% of their salary for 40 years could result in up to £100k loss.”
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The IFoA urges the government to “explore and engage to understand the potential of new initiatives and policies that may help to close pensions gaps,” it says. It wants a “specific focus on pensions gaps from advice and guidance support services such as ‘Pension Wise’.”
It adds: “Explore a new option to setup household pension plans for joint pensions savings. Review the inequity of current pensions tax relief e.g., it costs £80 for a 20% taxpayer to contribute £100 to a pension vs £60 for a 40% taxpayer.
“Reinvigorate its public messaging around minimum pension saving levels with a particular focus on those that are currently losing out when it comes to pension equity.
“Review the minimum Automatic Enrolment (AE) contributions, to ensure that regulations do not accentuate pensions gaps and examine AE options for the self-employed.”
6 months maternity leave could reduce a pension pot by £30k or more, it found. Not starting a pension – starting a pension at 35 instead of 25 could mean a pension pot of only £500k at retirement instead of £800k.
Ignoring pensions on divorce could mean that one party ends up with more retirement income than the other.
And moving to 3 days a week for the second half of an individual’s career could reduce their pension by £200k.