As retirement is one of the key milestones in your life, there is almost endless information about pensions – and not all of it is true.

Due to this, you may unknowingly believe certain pension myths that could negatively affect your long-term financial wellbeing.

In fact, PensionsAge reveals that only 34% of people have a clear idea of how much they need for retirement, showing there’s still a gap in knowledge regarding the next phase of their lives.

With that in mind, continue reading to discover five pension myths and why they’re wrong.

1. “Everyone’s Annual Allowance is the same”

Perhaps one of the most significant benefits of contributing to a pension is tax relief. This is when the government essentially “tops up” your pension at your marginal rate of Income Tax, meaning a £100 contribution would effectively “cost”:

• £80 for basic-rate taxpayers
• £60 for higher-rate taxpayers
• £55 for additional-rate taxpayers.

The amount you can tax-efficiently contribute to your pension each year depends on the “Annual Allowance”.

As of 2025/26, this stands at £60,000 or 100% of your earnings, whichever is lower. This includes third-party contributions, as well as tax relief.

While you may assume everyone is entitled to the same Annual Allowance, this isn’t always the case.

For instance, if you’ve already started drawing from your retirement fund, you could trigger the Money Purchase Annual Allowance (MPAA). If you do, this limits your tax-efficient contributions to £10,000 a year as of 2025/26.

So, it’s vital to think about whether you want to flexibly access your pension and potentially trigger the MPAA if you plan to continue working in some capacity during retirement.

Moreover, if you earn over a certain amount, your Annual Allowance tapers by £1 for every £2 over those limits to a minimum of £10,000.

In 2025/26, this will happen if your:

• Threshold income is over £200,000. This is your total taxable income before pension contributions.
• Adjusted income is over £260,000. This is your total income including all pension contributions.

As such, you may need to keep an eye on your earnings and find solutions, such as salary sacrifice, to help keep you below those key thresholds.

2. “My income needs will stay the same throughout my entire retirement”

While it’s easy to believe that you will need a certain level of income in retirement and this will remain consistent, this isn’t always the case.

Many people find that retirement spending follows a bell curve.

During the earlier years, you may find that you spend far more on big purchases, such as dream holidays around the world or significant home renovations. Then, as you start to slow down and settle into a routine after reaching those goals, your spending may decline.

However, your income needs could once again rise later in life, especially if your health starts to deteriorate. You may need to complete costly renovations on your home to make it more suitable.

Or you may require care, which can be expensive. Indeed, carehome.co.uk reveals that, as of August 2025, average care costs are:

• £67,132 a year for residential care
• £80,340 a year for nursing home care.

Failing to take these costs into consideration could mean you overspend in the earlier years of retirement. In this instance, you may end up with a shortfall and be unable to fund essential care later in life.

3. “You can inherit a pension without paying tax”

As you search for pension advice, there’s a chance you may have seen information stating that you can pass your retirement fund on to your beneficiaries without an Inheritance Tax (IHT) charge.

While this was previously the case, it’s vital to note that the rules are set to change.

Indeed, in 2024, the new chancellor, Rachel Reeves, announced in the Autumn Budget that pensions would form part of your estate from 6 April 2027.

In 2025/26, you can pass up to £500,000 tax-free to your beneficiaries if you make full use of your nil-rate bands. Couples can combine their allowances and pass on up to £1 million collectively.

While this might seem like a generous amount, your pension could quickly push more of your wealth above the nil-rate bands.

As such, it’s important to carefully plan your retirement saving and spending to ensure your loved ones don’t end up with a larger-than-expected tax bill.

4. “Everyone receives the full State Pension”

The State Pension – which is a guaranteed amount of money from the government – can form the bedrock of your retirement income.

As of 2025/26, the full new State Pension is worth £230.25 a week, or £11,973 a year.

However, not everyone is entitled to the full amount. To qualify, you typically need to accumulate 35 years of National Insurance contributions (NICs). And, you need 10 years to be eligible for any at all.

Even if you’ve worked your entire life, you might have taken time off work due to an illness or to care for children, which can result in gaps in your record.

As such, it’s a good idea to check your State Pension forecast to see whether it’s worth purchasing additional qualifying years.

Doing so could mean you can use the State Pension to cover day-to-day expenses, while your private pension wealth deals with more significant costs.

5. “I don’t need financial advice before I draw from my pension”

While this one isn’t technically a myth as you don’t need financial advice before accessing your pension, many people who don’t seek it come to regret it.

A survey reported by FTAdviser found that in the run-up to the Autumn Budget, 58% of respondents accessed their pension without seeking any formal advice. Around 1 in 7 later regretted doing so due to fears of overspending or running out of money.

If you excessively draw from your pension in the early years of retirement, you may exhaust your funds and affect your ability to maintain your standard of living.

Alternatively, if you’re too cautious, your loved ones may end up paying more IHT on your estate when you pass away.

A financial planner can help you achieve a balance between the two, ensuring that you spend within your means.

Get in touch

A financial planner can help you avoid the myths regarding pensions and ensure you don’t unknowingly derail your progress towards your long-term goals.

To find out how we could assist you, please email info@blueskyifas.co.uk or call us on 01189 876655.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

The Financial Conduct Authority does not regulate tax planning.