The common pension misconceptions that could cost you

How to prepare for retirement, and how to access your pension when you get there, are two of the biggest financial decisions you'll have to make.

But widespread confusion could leave savers facing an uncertain retirement: in our recent survey, almost nine in 10 of those yet to retire were unclear about how a defined contribution pension works, despite it being the most common type of workplace pension.

Here, we clear up the most common pension misconceptions and explain what extra support is being proposed to help savers prepare for retirement.

The misconceptions that could cost you

Worryingly, the majority of respondents we surveyed who are yet to retire were unclear about how a defined contribution pension works: more than a third incorrectly said 'a defined contribution pension is a type of pension that pays out a guaranteed income for life' was a true statement, and half said they didn’t know.

In fact, it's defined benefit pensions that provide a guaranteed income for life, but these are much less common nowadays. 

If you have a defined contribution pension, you build up a pot of money. When it’s time to retire, you’ll have to decide how to access it - either by buying an annuity, using drawdown, taking it as cash, or a combination of these options.

Eight in 10 respondents who hadn’t retired didn’t know that you must earn above a certain limit to be auto-enrolled in a workplace pension scheme - a misconception that could lead some to mistakenly assume they’re saving for retirement.

Six in ten wrongly thought that an employer must enrol you in a scheme regardless of how much you earn, and a further quarter said they didn't know. 

In reality, you must be at least 22 years old and earning at least £10,000 a year to be automatically enrolled in a workplace pension scheme. 

Contribution confusion

Around nine in 10 of those yet to retire in our survey were unclear about how much employers must contribute to workplace pensions: half incorrectly said 'if you have a workplace pension, your employer must pay in at least 5% of your earnings' is a true statement, and a further 34% said they don’t know.

Under auto-enrolment rules, you must save at least 8% of qualifying earnings into a pension, with at least 3% coming from your employer. However, for many, saving at these levels is unlikely to provide enough for a decent standard of living in retirement.

Meanwhile, just four in 10 respondents yet to retire correctly identified that when you save into a pension, the government chips in through tax relief. Four in 10 didn’t know, and one in six thought the statement was false. 

Tax relief is based on the highest rate of income tax you pay, and boosts your pension contributions by at least 20%.

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Why are pensions so complicated?

The shift towards defined contribution pensions in recent decades has put more responsibility on savers to work out how much they’ll need in retirement and save enough to get there. 

While the introduction of pension freedoms in 2015 gave savers more choice over how to access their DC pensions, our research shows that many don’t understand their options.

One option is to use some or all of your pension savings to buy an annuity. But eight in 10 respondents yet to retire were unclear what an annuity is.

Half said they didn’t know, and a quarter incorrectly confused it with equity release, saying that ‘an annuity is a type of mortgage that lets you access money tied up in your home’ was a true statement. In reality, an annuity is a financial product that provides guaranteed regular income for life (or a set period).

Meanwhile pension drawdown is a way to flexibly access money saved in your pension, while leaving the rest invested. But less than half of pre-retirees in our survey identified this as the correct definition: 11% said the statement was false, and 46% said they didn’t know.

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Why pension planning could be about to get easier

More help for savers is on the horizon. The launch of pensions dashboards - expected early 2027 at the earliest - will let people see information about all their pensions in one place and make it much easier to track their savings.

While the project has been hit by repeated delays since it was announced in 2016, over 70m pension records are now connected to the pensions dashboard programme, according to the latest update from the Money and Pensions Service. 

And next year the Pension Commission, which was re-launched in 2025 to help tackle the retirement crisis, will publish its final recommendations. While any changes are unlikely to come into effect until after the next election, key areas under review are auto-enrolment rules, pension options for self-employed people and how people access their pensions.

Jenny Ross, Which? Money editor, says:

'Knowledge is power, and understanding how your pension savings work is the first step on the road to a successful retirement plan. However, our research has shown millions of people across the UK are unsure about how and when they can access their pots, casting doubt on their financial security in retirement. 

'With the shift towards defined contribution schemes placing more responsibility onto the individual to make use of a finite pot of savings, many people are being left in the dark. The government and the financial services industry must step up to simplify retirement communication, and with the advent of pensions dashboards, ensure that straightforward, accessible guidance is readily available.'

Our research: In May 2026, we surveyed a nationally representative sample of 2,000 adults in the UK, of which 1,737 were not yet retired (this includes workers, job seekers, students and those continuing to work beyond pension age). The overall data has been weighted to be representative of the UK population (aged 18+).