Two major pension mistakes that could cost you thousands - what to do if you're affected

Following the release of Rachel Reeves' Budget, concerns have grown regarding the security of pensions, prompting responses from financial experts. One financial service has pointed out two key errors pre-Budget savers may have made, potentially costing them dearly in their retirement years.

Ms Reeves is advocating for a Canadian-style pension reform to kickstart the slumping UK economy, proposing "megafunds" for pensions as a solution to unleash billions into businesses and infrastructure investment. She aims to merge defined contribution (DC) schemes and amalgamate assets from 86 local government pension scheme authorities into a single entity.

By 2030, the Local Government Pension Scheme in England and Wales is projected to manage approximately £500 billion in assets. These funds are currently dispersed across 86 different administrative bodies, each overseen by local government officials and council members.

READ MORE: State pensioners new call to claim £3,900 after winter fuel payment axe

In the wake of the Budget announcement, Annuity Ready has identified a couple of pitfalls for those with pre-announcement savings that could backfire on them. They are now cautioning others who are contemplating saving to avoid making these blunders.

Research by the financial website has highlighted that individuals are making premature alterations to their retirement funds triggered by media speculation about potential pension changes in the upcoming Budget.

According to The Sun, the survey conducted by the firm revealed that 29 percent of respondents withdrew from their pensions ahead of their initial plan, while an additional 20 percent curbed their pension contributions, reports the Express.

Moreover, 75 percent admitted they would not have made such decisions had they known the actual contents of the Budget.

Sarah Lloyd, director at Annuity Ready, expressed her concerns: "Our findings paint a worrying picture of how people can feel prompted to make significant decisions about their retirement savings in the face of uncertainty."

She further elaborated on the gravity of the situation: "What's concerning is that these aren't just small changes - we're seeing people withdraw money early or reduce their pension contributions based on speculation rather than facts, which has real-world consequences."

Furthermore, the research revealed that 38 percent of those who altered their pension plans did so because the government resolved to means-test the Winter Fuel Payment, stoking anxiety over the possible repercussions for personal finances. Additionally, only 29 percent conveyed greater confidence in the stability of current pension policies in the aftermath of the Autumn budget.

Sarah expressed that people are not fully aware of how changes in government policy could affect their pensions. She stated: "This creates a perfect storm where rushed decisions are made from a place of anxiety rather than informed choice."

To avoid diminishing the value of your pension, it's advised not to withdraw cash from it prematurely.

While it may seem like a sensible decision at the moment, it won't serve you well in the long run. The money left in your pension pot is invested with the intention of increasing it over time, as investments typically rise in the long term.

As such, your funds benefit from compound interest. This means that any returns are reinvested, which is expected to increase your pot size.

Therefore, if you withdraw money, you'll miss out on the benefits of compound interest. You might also be liable for income tax.

However, don't fret if you've already withdrawn cash; if you did so before the Budget, you might be able to reverse the decision within 30 days. Consult your pension firm to see if they provide this option.

If you've reduced your contributions, you might have more immediate cash, but it will reduce your final total. You'll gain less from compound interest, and your employer may also decrease their contributions.

It's almost (exactly) like throwing money away.