Pension Awareness Week 2026 is from 14 September to 18 September, with the main Pension Awareness Day on 15 September.
It’s an ideal time to check in with your pensions to see if you are on track to enjoy the retirement you have planned.
You may find you’re on course for your dream retirement, or you may notice there are still gaps and need to make some adjustments to get you where you want to be.
In every instance, it’s important to understand exactly how pensions work and to be aware of some of the many misconceptions there are surrounding them.
So, read on to discover five myths to dispel this Pension Awareness Week.
1. “My default workplace pension scheme is maximised”
Workplace pensions typically have a default contribution rate. Under auto-enrolment rules, the minimum is usually 5% from you and 3% from your employer, although your workplace scheme may offer a more generous package.
Some employers will also match additional contributions you make, potentially significantly increasing the amount going into your pension. For example, if you increase your contribution, your employer might increase theirs too, sometimes up to 10% or even 20%.
However, you may not automatically receive the maximum employer contribution. In some schemes, you need to choose to increase your contributions before your employer will match them.
So, it’s worth checking your pension scheme or speaking to your HR department to find out the maximum your employer will contribute and what you need to pay in to receive it.
Otherwise, you could effectively be turning down additional pay from your job. Although you can’t access that money today, over the course of your career, the additional contributions and the growth they could generate could make a significant difference to your retirement savings.
2. “My pension will be tax-free”
When you start drawing from your pension, you can usually take some of your savings tax-free. In most cases, you can withdraw up to 25% of your pension without paying Income Tax, and this does not use any of your Personal Allowance.
However, there is a limit on how much you can take tax-free across all your pensions. This is known as the “Lump Sum Allowance” (LSA), which stands at £268,275 for most people in the 2026/27 tax year. Once you have used your full allowance, your withdrawals will normally be taxable.
Your State Pension also counts as taxable income. The full new State Pension alone is below the £12,570 Personal Allowance (2026/27), but it uses up most of it. So, if you also receive income from private pensions or other sources, you could find that more of this income is subject to Income Tax.
This makes it important to think carefully about how and when you draw from your pensions. A financial planner can help you build a withdrawal strategy that supports your retirement goals while making effective use of your available tax allowances.
3. “Everyone’s Annual Allowance is the same”
Each year, there is a limit on how much can be contributed to your pensions before additional tax charges may apply. This is known as the “Annual Allowance”.
For most people in 2026/27, the Annual Allowance is £60,000 or 100% of your earnings, whichever is lower. This can lead people to assume that £60,000 is the most that anyone can contribute in a single year.
However, you may be able to carry forward unused Annual Allowance from the previous three tax years. In some circumstances, this could allow you to make a much larger pension contribution in one year while remaining within your Annual Allowance.
Moreover, there are some instances where your Annual Allowance may be lower. If you have flexibly accessed a defined contribution pension, you might trigger the Money Purchase Annual Allowance (MPAA), which limits your future contributions to defined contribution pensions to £10,000 a year.
Your Annual Allowance may also be tapered if you have a high income. If your adjusted income exceeds £260,000, your allowance is reduced by £1 for every £2 of adjusted income above this threshold, down to a minimum of £10,000.
A financial planner can help you understand the allowances available to you and make the most of your pension contributions.
4. “My beneficiaries can inherit my pension tax-free”
Pensions have traditionally fallen outside your estate for Inheritance Tax (IHT) purposes. However, this is set to change from April 2027.
Under the proposed rules, most unused pension funds will be included within your estate when calculating IHT.
If you haven’t yet accounted for the change, now is a good time to review your plans. Depending on your circumstances, you might consider:
- Making full use of the available nil-rate bands, exemptions, and allowances
- Drawing more from your pension during your lifetime
- Gifting money to loved ones, including making contributions into their pensions
- Exploring whether an annuity could form part of your retirement income strategy
- Taking out life insurance in trust.
You can read more about the rule changes and the strategies to help manage them in our previous article on the topic.
5. “I’ve left it too late to start saving for my pension, so I’ll rely on an asset sale”
You may think you’ve reached an age where there’s no point in making further pension contributions. Some people in this position plan to fund their retirement by downsizing their home or selling their business.
However, relying too heavily on a future asset sale can be risky, and may also mean you miss out on the key tax benefits of pension contributions.
Moreover, your pension fund has the potential to grow throughout your retirement, which could last several decades. Over time, your holdings may benefit from compounding, where investment returns themselves generate further returns. A single, one-off sale is unlikely to experience the compounding advantages that typically only come with long-term investing.
Furthermore, if your retirement depends on selling a business or another asset, you could struggle to find a buyer when you need one or receive less than you expected. Economic conditions and market performance could also affect the value of your asset.
So, even if you’re starting later in life, building a separate retirement fund through your pension could provide another valuable source of income and give you more options when you retire.
Get in touch
Our team of independent financial advisers in Lewes is here to support you in building a retirement plan that makes the most of your available allowances while also being tailored to your future goals and needs.
To find out more, please get in touch by emailing us at financial@barwells-wealth.co.uk or by phone on 01273 086 311.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals 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.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
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