3 pension myths and misunderstandings busted

Understanding the ins and outs of your pension could set you up for success later in life, but misunderstandings or a lack of knowledge could have a significant effect on your retirement income.

For example, research from Aviva notes that 57% of Brits don’t know that the government automatically tops up their pension contributions by 20%. If this is the case, at least the same number of people will be unaware that higher-rate taxpayers can claim additional tax relief through self-assessment.

This is just one example of how pension myths and misunderstandings could make saving for retirement harder than it needs to be.

Are you leaving money on the table? Keep reading to debunk three common pension myths and find out more.

Myth 1: Self-employed individuals can’t get a pension

Ultimately, nothing is stopping a self-employed person from building a pension or retirement fund of their own. In fact, if you’re self-employed and are paying Class 2 or Class 4 National Insurance contributions (NICs), then you are already building eligibility for the State Pension.

However, this alone may not be enough for your retirement goals, so it’s important to explore every available avenue.

While self-employed individuals may not have the auto-enrolment advantage, there are still plenty of options to consider, including:

• Opening a personal pension. Whether you’re self-employed or not, you can open a self-invested personal pension (SIPP). SIPPs provide more flexibility and control, and you will still benefit from tax relief. Depending on your income, you will either receive the tax relief automatically or have to claim it yourself.
• Taking advantage of the Ltd Company loophole. If you’re registered as a limited company, you’re able to treat pension contributions as an allowable business expense, up to £60,000 annually. This means you can make your contributions directly from your company’s bank account, which will be exempt from Corporation Tax.
• Using government pension initiatives. The government-backed National Employment Savings Trust (NEST) could be a simple way for you to set up a low-cost and straightforward pension pot to manage your contributions.

Bridging the self-employed pension gap does take more effort than the inherent ‘set and forget’ nature of PAYE employment, but there are a variety of tax-efficient strategies you can take advantage of that could further boost your pension savings.

Myth 2: I am only able to pay into my own pension

While most pensions are solitary endeavours, it is more than possible to make contributions to other pension pots.

In fact, this could become a unique and tax-efficient way to support your loved ones as you can contribute to the pension of a spouse, partner, child, or grandchild.

This can be particularly useful if you want to help a family member fill a gap in their savings due to career breaks. For example, your partner may have taken time off work to raise children or care for elderly relatives.

For working individuals, you can contribute up to 100% of their taxable income, capped at £60,000.

Even if your loved one has no taxable income, you can still contribute to a pension pot in their name.

Here’s how:

• As of the 2026/27 tax year, you can pay up to £2,880 into the pension of a non-earner each tax year.
• With tax relief, the total annual contribution comes to £3,600.
• If you contributed the maximum amount for five years at a medium growth rate of 4.5%, the pot could be worth £19,800.
• Even if the beneficiary chose not to contribute to that fund ever again, it could still grow to £101,000 by the time they retire at 67.

The growth projected in the above example comes from Aviva’s investment calculator.

This could have a financial benefit for you, too, as these contributions could form part of your Inheritance Tax (IHT) strategy.

Read more: 3 underused IHT strategies to help you pass on more of your wealth

Myth 3: Everyone has access to the same basic pension

It’s a common misconception that the State Pension is a fixed, universal sum.

Assuming you will have access to the full new State Pension without checking your records could lead to a significant shortfall in your retirement finances.

To receive the full New State Pension, you will typically need to have 35 qualifying years of contributions on your National Insurance record. If you have between 10 and 34 years, you will receive a pro rata amount. If you have less than 10 years, then you may not receive anything.

As of the 2026/27 tax year, there are two distinct State Pension systems based on the date you reached retirement.

• The New State Pension: This applies if you reached State Pension age on or after 6 April 2016. The current full rate is £241.30 per week. This amounts to approximately £12,547.60 annually.
• The Basic (Old) State Pension: This applies if you reached retirement age before 6 April 2016, with a full basic rate of £184.90 per week, or about £9,614.80 annually.

While you may assume you tick all the boxes for your State Pension, gaps in your NICs could affect how much you receive. However, you can top up your State Pension by paying voluntary NICs to fill any holes.

Get in touch

Pensions are often considered the backbone of a sound financial plan, which is why paying attention to the details is so important. Don’t let pension myths and misunderstandings derail your financial future.

We understand that there’s a lot to consider and be aware of, which is why we’re here to help. Together, we can review your pensions and ensure your money is working as hard as it can for you.

Email helpme@aspirellp.co.uk or call 0117 9303510 to find out more about what we can do.

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. 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.