What are the different types of pensions?

For UK citizens, the State Pension is a regular payment from the government that you can claim once you reach your State Pension age, provided you have enough qualifying years of National Insurance (NI) contributions.

You’ll receive these payments every four weeks, and they’ll last for life.

The State Pension increases every year. Currently, under the pension ‘triple-lock’, it’ll rise by the higher of either:

• A flat rate of 2.5%
• Inflation
• The average increase in earnings (wages)

Most experts advise that to get the most out of your retirement, you should aim to save as much as you can into a private pension, too.

When approaching your State Pension age, the government will send you a letter no later than two months before you can start claiming. This letter will let you know what your options are.

If you’re a European Economic Area (EEA) or Swiss citizen who has worked in the UK and paid NI, you might qualify for the State Pension – but it’s best to contact the International Pension Centre to learn more.

• What is the State Pension age?

  Your State Pension age is the earliest age you can start claiming your State Pension, and depends on when you were born. For most people, this is now 66. However, the government plans to change the State Pension age to 67 by the end of 2028, and then eventually to 68.

  You can check when you’ll reach State Pension age.

  It’s important to remember that you don’t have to start taking your State Pension once you’re eligible. Instead, you can delay receiving your payments until a later date. This will have the effect of increasing your future income.

• How do I qualify for the State Pension?

  Your State Pension is based on your National Insurance (NI) record. For anyone reaching State Pension age on or after 6 April 2016, you’ll need at least 35 years of NI contributions to qualify for the full State Pension. You can still receive part of the full State Pension if you have at least 10 years’ worth of NI contributions.

  These years don’t have to be consecutive, and you can make voluntary payments to cover any gaps in your record – but these can only go back six years. If you’re married, your spouse can also transfer some of their contributions to make up the shortfall.

  There are circumstances in which the government will credit you with NI payments, even if you didn’t make any. For example, if you’re claiming Jobseeker’s Allowance or Employment and Support Allowance, or have caring responsibilities, you can get NI credits.

  Learn more about getting National Insurance credits.

  If you reached State Pension age before 6 April 2016, you’ll get the older, basic State Pension and, if you qualify, Additional State Pension. If this is the case, we suggest reading more here.

• How much is the State Pension?

  In the 2025/26 tax year, for anyone reaching State Pension age on or after 6 April 2016, the full State Pension is £230.30 per week.

  The government uses this weekly figure to obtain a daily rate, which it multiplies by 365.25 days per year. The extra quarter day is to account for leap years. For the 2025/26 tax year, this results in a yearly amount of £12,016.75.

  If you’re not eligible for the full State Pension, but have 10 or more qualifying years of NI contributions, you can still receive a payment proportional to your contributions.

  The current State Pension rules were implemented in 2016, which is why you may see it sometimes referred to as the ‘new’ State Pension. The older rules are known as the basic State Pension and the Additional State Pension.

  When the government started the new State Pension, it aimed to ensure that people who were already paying NI were protected against receiving a lower State Pension under the new rules.

  This means that if you began paying NI before 6 April 2016, your State Pension will be the higher of either:

  • The amount you would have gotten from the basic State Pension and Additional State Pension if the old rules had continued; or,
  • The amount you’d get if the new State Pension had been in place since the start of your working life.

  However, the Department for Work and Pensions will do any calculations for you and let you know how much you’re eligible to receive. Alternatively, you can check your State Pension forecast online.

A private pension is a way for you and/or your employer to save into a pension scheme, which can be used for an income in later life. A private pension is separate from your State Pension, and works differently. You may have a private pension through your employer, or directly with a pension provider like Canada Life.

Under normal circumstances, you can access your private pension at 55 (this will change to 57 from April 2028). However, this is a minimum age, and you may not want to take your income until later in life, for example when you stop working.

Private pensions can be divided into two basic types of saving:

1. Defined benefit pension schemes	2. Defined contribution pension schemes

Defined benefit pensions (sometimes known as ‘final salary’ or ‘career average’ schemes) pay out a secure income for life, which increases each year. You might have one if you’ve worked for a large employer or in the public sector.

With defined benefit pension schemes, it’s typical for the employer to contribute to the scheme, and they’re responsible for making sure that there’s enough money in it to pay your retirement income. They will usually continue to pay a pension to your spouse, civil partner, or dependants when you die. Your scheme rules will determine how your pension is calculated, so always keep your membership booklet and refer to it when necessary.

The income you receive is not reliant on investment returns and is usually calculated using three elements:

1. Your years of pensionable service in the scheme
2. Divided by the ‘accrual rate’ of the scheme. The accrual rate is the proportion of your earnings you’ll get as a pension for each year in the scheme (commonly 1/60th or 1/80th)
3. Multiplied by your pensionable earnings. This could be your salary at retirement (final salary), salary averaged over a career (career average) or another formula

For example, if you were in a defined benefit scheme for 10 years with a salary of £30,000 and the scheme accrual rate was 1/60th for each year of service, this would give you a pension of:

10 (years) ÷ 60 (accrual rate) × £30,000 (salary) = £5,000 income

Whereas defined benefit pensions are a type of workplace pension (see below), they are rare nowadays. This means that most workplace pensions are structured as defined contribution schemes.

With a defined contribution pension (also known as a ‘money purchase’ pension), you build up a pot of money that can provide you with an income during retirement. Payments into your pension can come from you, your employer, or even a third-party.

To help boost your pension savings, the government will give you tax relief on any contributions you make. However, there are limits on this.  For example, the maximum amount that can be paid into a pension each tax year (that qualifies for tax relief) is currently £60,000.  This is known as the “annual allowance”.

Unlike defined benefit schemes, which give you a guaranteed income for life that increases every year, the income you might get from a defined contribution scheme depends on:

The amount you pay in, alongside any payment your employer makes	How well your investments have performed	The choices you make when you access your money

Please bear in mind that providers charge fees, which can also have a significant effect on the value of your pension savings, especially over time.

To build up a defined contribution pension pot, you can invest your money in a range of different investment funds, designed to match your attitude to risk. The value of your pension can grow, but it can also fall, as with any investment.

Pension funds can be invested in different assets such as company shares (otherwise known as equities), bonds, property, cash, or other financial investment types. The value of your fund(s), and the assets within them, determines the value of your pension.

Today, most workplace and personal pensions are arranged as defined contribution schemes.

Workplace pensions are organised by your employer as a way of saving money into a pension scheme, which can then be used for an income later in life. They’re sometimes also called ‘occupational’, ‘work-based’ or ‘company’ pensions.

Essentially, a percentage of your pay is put into your workplace pension every payday, and your employer will pay in an amount alongside your contribution. Your contributions get tax relief, which means that money you would normally pay to the government as Income Tax is instead invested into your pension, boosting your savings.

If you’re employed, 22 years in age or older, earn more than £10,000 a year, and ordinarily work in the UK, your employer is required to auto-enrol you into a pension scheme. You can opt-out if you wish, although if you do so your employer will re-enrol you every three years.

The minimum contribution to your pension is typically 8% of your 'qualifying earnings'. For the 2025/26 tax year, ‘qualifying earnings’ are set between the lower limit of £6,240 and the upper limit of £50,270, meaning the maximum ‘qualifying earnings’ are £44,030.

By way of example, if your total applicable earnings in tax year 2025/26 came to £30,000, your ‘qualifying earnings’ for the purpose of pension contributions would be £23,760 (£30,000 minus £6,240).

This 8% is split as follows:

• 4% comes from you
• 3% comes from your employer
• 1% comes from the government in the form of tax relief

You or your employer can pay in more than the minimum. If you decide to save an additional amount into your pension, your employer may choose to match your contribution, up to a certain level. Some employers are willing to redirect this into a personal pension scheme of your choice.

It is worth noting that many employers offer more generous pension contributions than the minimum requirement detailed above. If you are unsure about the pension contribution structure that your employer offers, we recommend that you speak to your employer about this.

• Ways to get pension tax relief

  There are two ways you can receive tax relief on your pension payments.

  1. Relief at source

  • With relief at source, you contribute to your pension scheme from your income after tax has been deducted.

  • Your pension provider will then claim 20% tax relief directly from the government. This amount will be added to your savings.

  • The 20% tax relief is at the basic rate of Income Tax. If you pay one of the higher marginal tax rates, you can claim additional tax relief from HM Revenue and Customs (HMRC).

  2. Net pay

  • With a net pay arrangement, your employer will contribute to your pension scheme from your pay before tax is deducted.

  • If you pay Income Tax above the basic rate of 20% on part of your pay, you don’t have to claim this back from HMRC, as you would with relief at source.

  • By contributing to your pension from your pay before Income Tax is deducted, all your pension tax relief is received straight away.

  You can ask your employer how you receive your pension tax relief. With a net pay arrangement, your employer may offer ‘salary sacrifice’, also known as ‘salary exchange’.

  Here, you decrease your salary by the amount you’re saving into your pension. This lessens the National Insurance contribution you’re obligated to pay based on your salary. However, there may be disadvantages to using salary sacrifice, depending on your personal circumstances.

  Read more about salary sacrafice

When joining a workplace pension, you’ll usually be able to choose how your savings will be invested. If you’re not confident choosing investments, your provider will invest in a default fund on your behalf. These are often referred to as ‘lifestyle’ funds.

Lifestyle funds will normally automatically move your savings into lower-risk investments as you near retirement age. This protects your pot from the larger fluctuations in value that higher-risk investments normally experience, but may not be suitable for those who would prefer to accept a higher level of investment risk and remain invested through retirement.

As their workplace scheme, some employers will arrange a personal pension for you with a private provider. These are called ‘group personal pensions’, ‘group stakeholder pensions’ or ‘group self-invested personal pensions’.

A personal pension is a type of defined contribution scheme you organise with a provider of your choice. You’ll arrange your contributions with your provider, who’ll then administer your pension for you.

People normally pay into their personal pensions regularly, but some providers will let you pay in lump sums on an ad-hoc basis. This means that a personal pension can give you flexibility if you’re self-employed or have an uncertain income.

You can have both a personal pension and a workplace pension at the same time, but it often makes financial sense to pay into your workplace pension first, as this is where your employer’s contributions will go. Some employers may be willing to contribute into your personal pension.

Your provider will offer you a choice of funds to invest in, and the aim is to grow your fund over time. People often choose to invest in multiple funds, spreading their investment risk over a broad range of assets. This is known as diversification.

A default fund will be available if you don’t feel confident in selecting your own . Additionally, non-workplace personal pensions can offer ‘investment pathway’ funds, designed for savers who don’t have a financial adviser, but want to remain invested as they get closer to retirement.

As with any defined contribution scheme, you get tax relief on your payments into your pension. Your provider will automatically claim 20% tax relief on your behalf. If you pay higher or additional marginal Income Tax rates, you’ll need to claim the extra pension tax relief from HM Revenue and Customs (HMRC).

How much you contribute, and how well your investments perform, will be central in determining the value of your pension pot. Providers also charge fees, which can have a significant effect over time.

Employers can use a personal pension for their workplace pension. This is called a ‘group personal pension’.

Personal pensions include both self-invested personal pensions (or SIPPs) and stakeholder pensions.

• Self-invested personal pensions (SIPPs)

  It’s very common for personal pensions to be self-invested personal pensions (SIPPs). As you get to choose where to put your money with a SIPP, it’ll give you greater control over how your savings are invested.

  However, this could also increase your risk if you’re not experienced in making important investment decisions. Investments fall as well as rise in value, so you could get back less than you invest.

  With a SIPP, you can invest in a wider range of assets than you’d find available to you in a standard personal pension, including:

  • Specific company stocks
  • Collective investments – like investment trusts and exchange traded funds (ETFs)
  • Commercial property funds – depending on your provider

  You can find out from your provider if they offer further options. It’s important to note that given this wider selection, SIPPs may come with higher charges.

  SIPPs also require active management, which you can choose to do yourself or with the help of a qualified financial adviser. If you’re considering a SIPP, we suggest speaking to a financial adviser beforehand.

  Employers can use a SIPP for their workplace pension, known as a ‘group self-invested personal pension’.

• Stakeholder pensions

  Stakeholder pensions are designed with flexibility and low costs in mind, and they must meet certain standards set out by the government, including:

  • Small minimum contributions of no more than £20
  • The ability to stop and re-start your payments whenever you need to
  • Transfers into or out of the pension without any charges
  • Capped management fees (1.5% for the first 10 years, and then at 1% from then on)
  • A default fund (like a standard personal pension, stakeholder pensions must offer a default fund if you don’t want to make investment decisions yourself)

  As with standard and self-invested personal pensions, employers can use a stakeholder pension for their workplace pension. These are known as ‘group stakeholder pensions’. If your employer is using a group stakeholder pension, your pension management fees will be capped at 0.75%.

  Learn more about stakeholder pensions