By Christian Abbott

Copyright birminghammail

Ensuring you have a healthy pension pot before retirement is vital and avoiding these three mistakes can go a long way to helping boost your savings by up to £40,000. Ahead of the autumn budget and rising fears that Chancellor Rachel Reeves could make changes to taxation, being aware of these factors will be vital for retirement. Antonia Medlicott, Managing Director of financial education specialists Investing Insiders , has revealed three common pension mistakes you should be aware of. Read more: Full list of New Look stores closing in 2025 as another shuts down next week You can discover where your pension is invested by reviewing your annual paperwork from your pension provider, or alternatively, you can log in to your online account and check there. Once you have found your pension, you can then compare its performance against other accounts. It’s estimated that over ten years, the performance gap between top and bottom decile funds is 5.5 per cent per year. With the average pension contribution being around £2,100 a year in the UK, this means you’d be £115.50 better off annually in a higher-performing pension fund. Over 10 years, this would be £1,155. Withdrawing pension savings before the normal retirement age, or being 55 (57 from 2028), can result in severe tax penalties. However, when you wait for retirement, you get benefits like 25 per cent of your pension pot being tax-free, with the rest depending on what rate it falls in. For example, if you decided to withdraw £30,000 from your pension pot early, you’d end up paying £16,500 in tax. But waiting until at least 55 will result in the taxman only seeing £4,500, a crazy £12,000 saving. From April 2027, pensions will become a part of someone’s estate and, therefore, be subject to inheritance tax. One way to minimise this is to take advantage of IHT gift rules, which allow for annual gift allowances, as well as larger sums of money, as long as the subject survives at least seven years after. Doing this will reduce the amount of tax that you will pay after your death, as you can gift £3,000 per year tax-free to one person, then up to £250 to multiple different people. This reduces the overall amount of inheritance tax you will have to pay, as ultimately there will be less money in your ‘estate’. The amount you save depends on how much you gift and how much you already have in your pot. In the UK, the average amount left in a pension pot when someone dies is between £50,000 and £150,000. So if someone dies with £100,000 unused, assuming that they also had the national average estate at death of £335,000, of that £100,000, £30,000 would then be paid in tax.