Five biggest pension myths exposed

Saving into a pension is one of the best ways to ensure that you’ll enjoy a comfortable retirement, but there are all sorts of misconceptions which can put people off.

Here, we expose some of the biggest myths that might be preventing you from making the most of pensions.

The myth

If I’m working part-time or taking a break from work, I can’t pay into a pension

The reality

You can still contribute to a pension if you’re working part time, or even if you’re currently not working.

Whether you work part or full-time, provided you’re earning a minimum of £10,000 from a single job and are aged 22 or over, you’ll automatically be enrolled into your employer’s workplace pension, into which both you and they must contribute.

If you earn less than £10,000, you can still join your company pension scheme, but you’ll have to ask to opt into it.

If you’re not currently working or are working part-time and don’t have access to a company scheme, you can pay into a personal pension if you’re able to. You’re allowed to pay in up to £2,880 a year into a pension as a non-taxpayer, and tax relief will boost that amount to £3,600

The myth

I’m too old to start a pension

The reality

It’s never too late to start saving into a pension, although the tax benefits of saving into a pension scheme stop at age 75.

If you’re in your 50s and 60s it’s still well worth having a pension as your contributions will qualify for tax relief, or money back from the taxman. What’s even better is that as you’re closer to taking your pension, the tax benefits can appear even more attractive. This is because the tax relief stays the same, but you can access the money you put in much sooner than someone in their twenties can.

If you’re a basic rate taxpayer, a £100 contribution into your pension will only cost you £80, whilst if you’re a higher or additional rate taxpayer the same contribution will set you back only £60 or £55.

Remember though, the earlier you start saving into a pension, the longer you’ll have to build up your savings, and the longer your investment returns will have to grow, hopefully providing you with a better income when you stop work.

The myth

I don’t need a pension because I own a property

The reality

Soaring house prices over the last twenty years mean that many people now have a substantial amount of their wealth tied up in their homes and might be tempted to rely on property rather than a pension to fund their retirement.

However, before forgoing pensions, it’s important to think practically about how using your property as your pension might work. For example, you’ll usually have to sell your property and downsize if you want to free up cash from it, which may mean leaving a home you love. There will be steep costs involved in doing this too, such as legal fees, estate agency costs and stamp duty on the next property you buy.

It’s also worth bearing in mind that house prices could fall in future, so that by the time you reach retirement your home might not be worth as much as you’d hoped.

If you’re relying on a rental property to provide you with an income in retirement, you might have periods without a tenant, and you’ll have to cover maintenance costs and lettings fees.

With a pension, although your money is locked away until you reach the age of 55, it is usually invested in a wide range of investments, helping spread risks. You also benefit on tax relief on your contributions, boosting the amount you save.

The myth

My pension will be lost when I die

The reality

Pensions can actually be a very tax-efficient way of passing your money onto future generations.

If you have a defined contribution pension and die before you retire, your pension will usually pass tax-free to the person you nominated when you first started paying into it.

If you didn’t nominate anyone, the trustees of your pension can award it to anyone who’s financially dependent on you, for example, your children or spouse.

If you die after you’ve retired but before the age of 75 and you were taking an income from your pension using flexible drawdown or flexi-access drawdown at the time, your dependants can receive a tax-free income from your pension. However, if you die when you’re over the age of 75, your pension pot will still transfer tax-free, but your dependents will have to pay income tax on any income they receive from it, in the same way as you would have.

It’s usually only if you’ve used your pension to buy an annuity or income for life that your retirement income stops when you die, although some annuities may continue to provide an income for a dependant.

Whilst each scheme is different and you should check the details of your current pension, if you have a defined benefit pension and die before you retire, your scheme may actually pay out a tax-free lump sum that’s typically two or four times your salary. It may also provide what’s known as a ‘survivor’s pension’ to your beneficiaries.

If you’ve already retired and started receiving an income from your final salary pension when you die, usually a proportion of your pension will be paid to your spouse or partner and/ or any dependent children. These post death benefits can be hugely valuable, so it’s worth speaking to your current pension provider to understand your own situation.

The myth

I could lose my pension if my employer runs into financial difficulties

The reality

If you pay into a defined contribution pension, where the amount you get when you retire will depend on how much you paid in and how the investments your money has gone into have performed, you won’t lose your pension savings if your employer goes bust.

Your pension will usually be run by a pension provider and not by your employer, which means it will be protected even if your employer goes out of business.

If your defined contribution pension is a ‘trust-based’ scheme, whereby it’s run by a trust appointed by the employer, you’ll still get your pension if your employer goes out of business, although you may get a reduced amount because the running costs for the scheme will have to be covered by members’ retirement savings rather than by your employer.

The situation’s different if you have a defined benefit or final salary pension, where the income you receive at retirement is based on how many years you’ve belonged to the scheme and a proportion of your final year’s pay. Your employer is responsible for making sure there’s enough to pay you your pension at retirement, but even if they get into financial trouble they can’t touch your retirement savings.

If they go bust and can’t pay you your pension, you’ll usually be protected by the Pension Protection Fund. This will typically pay you 100% of your pension if you’ve reached the scheme’s retirement age, or 90% if you’re below the scheme’s pension age.

Did you find this page helpful? We’d love to hear from you at [email protected].

Some important information about Rest Less Money

We want you to understand the positives, but also the limitations of using our site. We operate in a journalistic manner and therefore all information, guidance or suggestions provided are intended to be general in nature, and you should not rely on any of the information on the site in connection with the making of any financial decision.

When we set out to build Rest Less Money, we wanted to be a trusted place where you could find helpful information about financial matters affecting the over 50s. As a free to use resource, we try hard to provide the best information we can, but we cannot guarantee that we won’t occasionally make mistakes. So please note that you use the information on our site at your own risk, and we can’t accept liability if things go wrong.

Key things to remember when using Rest Less Money:

We do not offer financial advice – As a journalistic site, it’s important to know that we do not provide financial advice. You should always do your own research before choosing any financial product so that you can be certain it is right for you and your specific circumstances. If you are in any doubt, please seek professional financial advice from a regulated financial advisor.

No Liability – please note that you use the information on Rest Less Money at your own risk and we can’t accept liability for how you choose to use the information given on our site. We will often provide links to content or products and services available on other third-party websites. These are provided purely for your convenience and we cannot be held responsible for any content, or any of the products and services offered on any website that we link to.


Accuracy of Information – We try to make sure that all the information provided on Rest Less Money is correct at the time of publishing as we want it to be the most helpful resource possible. Sadly, we are not perfect however, and so we can make no guarantees as to the completeness, accuracy, adequacy or suitability of the information available on the site.
Whilst we work hard to try and provide accurate information, deals and prices can change, so whilst they may be correct at the time of writing, providers may subsequently decide to alter them later – so always double check first.

A final note on the Rest Less Community Forums – always remember that anyone can post their opinion on the Rest Less Community Forums, so it can be very different from our own opinion and may not be factual or well researched. Always be wary of any content posted on the forums and be sure to do your own research and due diligence on anything suggested. 

We hope you find Rest Less Money a useful resource and we would welcome your feedback at [email protected] on how to make it even better. For more information on any of the above you can read our full terms and conditions.

Share on facebook
Share on twitter
Share on linkedin
Share on whatsapp
Share on email

Join Rest Less Money Club

Helpful tips and guidance for making the most of your money – straight to your inbox

By providing us your email address you agree to receive emails and communications from us and acknowledge that your personal data will be used in accordance with our Privacy Policy and Terms and Conditions. You can unsubscribe at any time by following the link in our emails.

Join the Rest Less Money Club

Helpful tips and guidance for making the most of your money – straight to your inbox

Good luck with your application

Before you go, we’d love to stay in touch to find out how you get on. Sign up to Rest Less today to get free job alerts and inspiring content sent straight to your inbox.
By providing your email you agree to receive emails and communications from us and acknowledge that your personal data will be used in accordance with our Privacy Policy and Terms and Conditions. You can unsubscribe at any time through the link in our emails.