What are the different types of pensions in the UK?

Choosing the right pension type can help you to save smarter, reduce tax, and build a retirement plan that fits your life, but it's an important decision so before you decide between the various pension types the key is to understand your options. 

Why understanding different pension types matters

As well as the State Pension, several workplace and private pension options exist to help you save for retirement in a tax efficient way. 

Understanding pension types will help you to select the best options available to you - those that best align with your needs, circumstances, employment type, age, retirement goals and, because pensions are invested, your appetite for risk.

What are the main types of pension?

• State Pension: The government-provided baseline income for retirement.
• Workplace Pensions: An auto-enrolment pension provided through your employer, with employer contributions added to your own contributions
• Personal Pensions: A good option for self-employed people that don’t have access to workplace pensions, or for others as a supplement to their other retirement savings. 

State Pension

The State Pension comes out of government funds and the current access age is 66, rising to 67 in 2028. Your eligibility for this pension (and the amount you’ll receive) will depend on your National Insurance contributions or NI credits throughout the course of your working life.

Who can get the State Pension?

You need 10 qualifying years to be eligible for some State Pension and 35 qualifying years for the full state pension amount, which is, as of 2025/26, £11,973 per year.

A National Insurance qualifying year is a year in which you did one or more of these:

• Worked and paid National Insurance contributions
• Got NI Credits (usually given to people who are unemployed, sick, on parental leave or acting as a carer)
• Paid voluntary NI contributions (often done to make up a shortfall)

How much State Pension can you get?

The size of your State Pension will be calculated on a sliding scale based on your qualifying years. Someone with 30 qualifying years will get more than someone with 25, 20 or 10 qualifying years, while you’ll need a total of 35 qualifying years to get the full amount. 

Each qualifying year contributes an equal 35th to your total State Pension amount, so someone with 10 qualifying years would receive 10/35 of the full amount, which would currently amount to a pension of £3,420.86 each year instead of the full £11,973.

What is the basic State Pension?

Before April 2016 there were two State Pensions: the Basic State Pension and the Additional State Pension. The Basic State Pension is similar to the State Pension in place today, in that the same flat rate and rules apply to everyone. 

The Additional State Pension was earnings-related, variable, and applied to a more limited number of people, but that option no longer exists for new retirees. 

Is the State Pension enough or should you save more?

The State Pension is a good baseline but it’s not likely to cover much more than life's basics, which means if you’re hoping for a more comfortable retirement you’ll need to supplement your State Pension with other retirement savings.

For instance, the full State Pension amount of £11,973 a year is significantly less than the £13,400 that Retirement Living Standards suggests is the minimum annual income required to fund retirement for a single person.

What are the pros and cons of the State Pension?

• Pros: As it’s government-funded, the State Pension is a very reliable, stable and guaranteed source of retirement income, and since it’s also inflation-adjusted it does increase a little over time as well, in line with the rising cost of living. 
• Cons: The full rate of the new State Pension for an individual is less than the suggested minimum single person annual income required to fund retirement by the Retirement Living Standards.

Workplace Pensions

Workplace pensions are set up by employers and can be a powerful tool in building your retirement fund. Since 2018 all employers in the UK have been required to auto-enroll their employees into a workplace pension scheme.

What is a Workplace Pension?

All employers must provide a workplace pension scheme that every employee who is over the age of 22 and earning at least £10,000 per year is auto-enrolled into. Employees can choose to opt out of auto-enrolment when they first join a new employer, but opting out isn’t recommended because the employee would be forfeiting the employer’s pension contributions.

A minimum of 8% of your annual salary will go into your pension pot each year, of which you pay 5% (including 1% tax-relief) and your employer pays 3%. 

What is the difference between Defined Benefit (DB) vs. Defined Contribution (DC)?

The main difference between Defined Benefit pensions and Defined Contribution pensions is how your retirement income is calculated. 

Defined Benefit (DB)

A Defined Benefit pension promises a fixed income for the rest of your life after you retire, with the size of that monthly income based on your final salary and the number of years you worked there. That’s why it’s sometimes called a ‘Final Salary Pension’. 

Once common in the private sector, Defined Benefit pension schemes are now rather rare outside of public sector jobs. 

Defined Contribution (DC)

Most active Workplace Pensions now are Defined Contribution schemes, essentially big savings pots into which employees and employers contribute money which is then invested. With these pensions your retirement income will be based on the amount you and your employer contribute to the pension fund and how well that pension fund’s investments perform.

How do employer contributions work?

Your employer has to contribute at least 3% of your salary to your Workplace Pension each year, but many employers go above and beyond that with bigger percentages, contribution-matching, or salary sacrifice schemes, where additional pension contributions are deducted from your salary before tax is calculated.

Who benefits most from Workplace Pensions?

If you’re in a stable job and your employer is committed to paying pension contributions which exceed the 3% – whether they do it as standard, via contribution-matching or through other perks and incentives – then the ingredients are there for you and your pension to benefit in a significant way.  

Personal Pensions

Personal Pensions are a type of private pension plan that you can set up and manage yourself, entirely separate from any employer.

What are Personal Pensions and who needs them?

Eligibility criteria aside, anyone can open and contribute to a Personal Pension, either as a primary option or as a way to complement a Workplace Pension, but these can be a particularly useful option if you’re self-employed and therefore don’t have access to a regular Workplace Pension.

Personal Pensions offer the same tax-relief, limits and allowances as Workplace Pensions. 

What are the different types of Personal Pensions?

• Stakeholder Pensions: Stakeholder pensions are offered by banks, building societies and insurance companies in the UK, and were introduced as a simpler option that’s designed to encourage better retirement planning.
• Self-Invested Personal Pensions (SIPPs): SIPPs give you choice and freedom to pick and manage your own investments, which often makes this type of pension an attractive option for people who are interested in the financial markets and keen to set their own investment strategy.
• Standard Personal Pensions: Standard personal pensions are pensions that individuals can set up themselves, separate from an employer’s pension scheme.

Stakeholder Pensions

What are Stakeholder Pensions?

A Stakeholder Pension is a type of Personal Pension designed to be simple, affordable, and flexible, particularly for people with fluctuating incomes. These pensions are:

• Regulated by the government
• Required to meet specific criteria (including capped charges and low minimum contributions)
• Aimed at making retirement saving more accessible for a wider range of earners.

Most Stakeholder Pension schemes are provided by banks, building societies or insurers in the UK.

Who are Stakeholder Pensions for?

Stakeholder Pensions could be a good option if you:

• Earn a low-to-moderate income
• Are self-employed, working part-time, or on a seasonal contract
• Need to pause or adjust contributions without penalties
• Prefer a no-fuss pension that doesn’t require hands-on investment decisions like a SIPP would require. 

What are the pros and cons of Stakeholder Pensions?

Stakeholder Pensions were introduced through UK government legislation in order to encourage more people to save for retirement. For that reason these types of pensions have been designed to be accessible and flexible, with capped charges and the ability to pause, increase or decrease contributions as required. 

The trade-off for that simplicity and flexibility is that Stakeholder Pensions tend to provide fewer policy options, less choice and a reduced range of investment options. 

Self-Invested Personal Pensions (SIPPs)

What are SIPPs?

Pensions are usually invested in stocks and shares, bonds, commodities, real estate and other alternative assets, and as the name suggests a Self-Invested Personal Pension allows you to pick those investments yourself. Some people work with a financial adviser to decide what their SIPP should be invested in, while others may decide to make all of the investment decisions themselves. 

Who are SIPPs for?

SIPPs tend to attract people who have some knowledge and experience in investing, or who are working alongside a financial adviser. By definition SIPPs are hugely flexible as you pick and manage your investments and their performance. For many, having this level of control is a big draw. 

What are SIPPs pros and cons?

• Pros: SIPPs offer freedom to choose your own investments, usually from a very wide range of investment options and asset classes, and in many cases you’ll be able to invest both nationally and globally. 
• Cons: By their nature SIPPs are relatively complex and may sometimes cost more in terms of fees and charges than standard personal pensions. There’s also the risk that your investments might not be diversified enough when you’re choosing them yourself through a SIPP, which could leave you more exposed to market volatility. 

Standard Personal Pensions:

What are Standard Personal Pensions?

Standard Personal Pensions are Defined Contribution schemes that invite you to save for retirement independently of a Workplace Pension. Typically speaking, a provider will offer several pre-packaged investment funds, all managed by them, which vary by risk level. 

Who are Standard Personal Pensions for?

Standard Personal Pensions can be a good option for anyone, but if you’re self-employed or otherwise have an unreliable or nonstandard income pattern they may hold extra appeal. Standard Personal Pensions can nicely complement Workplace Pensions and many people run the two in parallel. 

Standard Personal Pensions come in different shapes and sizes so you’ll ideally find a fund that fits your budget, income, goals, and appetite for risk. Standard Personal Pensions can be a good option, too, if you want some choice and flexibility in your investments but don’t feel confident enough to open a SIPP. 

What are Standard Personal Pensions pros and cons?

• Pros: Although Standard Personal Pensions involve the same tax relief as other pensions, there’s typically more flexibility to scale your contributions up or down without being tied to a mandatory minimum.Also, having a provider manage your investments puts some professional standards and safeguards around your future and you may be able to consult your provider for professional advice and / or strategies. 
• Cons: In Standard Personal Pensions, management charges may be higher than with Workplace Pensions and of course there are no employer contributions buoying up your fund. Relatedly, with Standard Personal Pensions you are in charge of making and maintaining contributions - they won’t automatically roll in on payday.

Other pension options you might not have heard about

Some pensions don’t fit neatly into the usual categories, but they could be relevant if you’ve had multiple jobs, are in the public sector, or have older pension arrangements.

AVCs (Additional Voluntary Contributions)

Additional Voluntary Contributions (AVCs) essentially means topping up your workplace pension, or another pension scheme running in parallel, ad-hoc through your employer. 

For example, if you receive an annual bonus you could instruct your employer to make an additional voluntary contribution (AVC) into your company pension alongside your standard contribution. 

FSAVCs (Free-standing AVCs)

Like an AVC, an FSAVC is a way to top up your pension as-and-when required, but instead of doing so through your employer you contribute on an ad hoc basis into a private pension that’s entirely independent from your workplace scheme. 

Retirement Annuities (older schemes)

Retirement Annuity Contracts (RACs) are / were a type of Defined Contribution pension scheme where accumulated funds were used to buy an annuity. Until Personal Pensions replaced them, RACs were particularly popular among the self-employed and those without access to a Workplace Pension. 

New RACs aren’t available but you can still use and contribute to an existing one. 

Group Personal Pension (GPP)

A Group Personal Pension scheme combines a lot of personal pension plans for extra buying power in the investment market. Employers provide and contribute to GPPs but individual employees can select their own investment funds and risk level.

GPPs have grown in popularity in the private sector as an alternative to Defined Benefit/Final Salary Pension schemes. 

Master Trust Pension

A Master Trust Pension is like a super fund that holds the pension schemes of multiple employers, often large employers, in one tightly regulated central place. Designed to run with efficiency and at lower cost, a single board of trustees is responsible for the fund’s management and governance but participating employers can steer contributions and investments. 

You might be enrolled in this type of pension if you work for a larger employer who is part of a Master Trust Pension fund, but it’s not something you can choose yourself. 

When should I combine or switch pension types?

It’s important to evaluate your pensions during and after major life events or milestones (a death, a new job, a sudden influx of funds, changing health situations) in order to ensure your pension fund is continuing to serve your evolving financial goals. 

One option that you might want to consider during these evaluations is consolidating or switching pensions. 

Consolidating pensions can sometimes make them easier to manage, while switching to an entirely different pension provider might be worth considering if you want a wider range of investment options than your current provider can offer, or if the management fees on your existing plan seem excessively high.

However, it’s important to bear in mind that closing a pension in this way may incur fees and impact other benefits, and transferring out of a Defined Benefit pension is especially risky as you'll likely swap a retirement income that’s guaranteed for one that isn't. 

How do you choose the right pension for your life and goals?

Choosing a pension is a personal decision based on your income, employment type, risk appetite, retirement goals and personal circumstances. 

Risk tolerance and investment control 

Pensions are investments and investments carry risk, so your level of risk appetite, your level of confidence and how much control you want to have over your retirement investments should be taken into account when choosing the right pension for you.

For example, if you’re driven and goal-focused, you might benefit from a hybrid approach: a workplace pension for security and a SIPP for hands-on growth and flexibility.Then again, if long-term retirement planning feels overwhelming then you might want to start smaller. A Workplace or Stakeholder Pension will most likely offer a default fund, which is invested in a range of different assets and overseen by professionals. This could be a good place to start your pension journey with relative peace of mind.

Fees and charges

Management fees and investment charges can vary from one pension provider to the next, depending on their size, set up, complexity and the amount of human-intervention required. The types of assets they’re investing in on your behalf will also affect the fees you face. 

The higher the fees, the better your investments will need to perform to make the returns worthwhile, which means over time those fees can have a significant impact on your retirement fund. 

As a rule of thumb, large general pension funds incur less in fees than smaller, specialised or bespoke funds. 

Flexibility and access 

Most pensions offer a degree of flexibility but some are relatively rigid in areas such as the minimum contribution amount, timings, fees, choice and access. If flexibility is a big consideration for you, but at the same time you prefer stability and simplicity, then it would be a good idea to look for pensions with capped fees and conservative investment profiles like stakeholder pensions.

What can you expect from your employer pension contributions?

By default your employer has to contribute a minimum of 3% of your salary (combined with your own minimum contribution of 5%) into a Workplace Pension. 

If your employer offers more then there may be more flexibility on what you put in and it pays to understand what further incentives (contribution matching, salary sacrifice, and AVCs to name a few) your employer offers

How tax relief works on pensions 

Tax relief on pensions means that when you contribute to your pension pot there’s an additional top-up from the government.

Workplace Pensions usually provide this tax relief automatically by deducting your pension contributions before income tax is calculated.

With Private Pensions, most people get 20% basic tax relief added to their private pension contributions automatically, which means £100 will be added to their pension pot for every £80 they contribute. 

Higher rate taxpayers are also able to claim back the extra tax they paid on their pension contributions, although that doesn’t happen automatically - they need to claim that tax back by filing a Self-Assessment with HMRC.

Which pension might be best for you based on your age

In your 30s: Start strong with your pension

• Time horizon: A long runway to retirement allows for more growth-focused options, such as DC schemes and personal pensions with higher equity exposure
• Workplace Pension priority: The more you can pay into your workplace pension scheme the faster your pension pot will grow, so take advantage of employer matching if possible.
• Consider SIPPs or other higher risk funds: When you’re in your 30s you may be comfortable taking risks and your Workplace or Personal Pension may offer higher risk options. SIPPs invite you to pick your own investments from a wide range of options and therefore you can set a level of risk that works for you. 
• State Pension contributions: Ensure you’re building up NI contributions consistently.

In your 40s: Grow and manage your pension

• Focus on employer contributions: Defined Contribution schemes with employer matching and salary sacrifice could free up more income now while quietly building your retirement pot. If you’re in your 40s and juggling a demanding career and kids then it might be a good idea to focus on employer contributions and automatic growth. 
• Consider SIPPs: If you’re self-employed consider a SIPP (Self-Invested Personal Pension) for investment flexibility and ethical fund options. This is a great option if you want more control or want to align your investments with your values. 
• Stakeholder Pensions:  If you want to be able to be super flexible in your contributions then consider a Stakeholder Pension. 
• Consider consolidating your pensions: By your 40s, you may have built up several pension pots from different jobs. Consolidating them can make it easier to track your total retirement savings. Moreover older pension schemes might have higher fees so reviewing them and consolidating could save you money. 
• Boost your contributions if possible: Your 40s are often when salaries are highest, making it a great time to invest more in your future. Moreover, contributions made now still have 20+ years to grow. 

In your 50s: Get serious about pension planning

• Risk adjustment: When you’re in your 50s any downturns in your pension investments could have a bigger impact on the size of your pension pot at retirement, since you won’t have as much time for those investments to recover their losses as you did when you were younger. It might be worth adjusting your risk appetite with this in mind. 
• Catch-up contributions: If you didn’t benefit from the full level of pension tax relief in previous years it might be worth “carrying forward” that missed tax relief now, enabling you to catch up on lost pension contributions while still benefiting from your right to tax relief.
• Check your State Pension forecast: The government has a service that allows you to check that you’ll have enough qualifying years for a full State Pension by the time you’re scheduled to retire. 

In your 60s: What to do with your Pension now

• Risk adjustment: Your attitude to risk is likely to be even lower once you reach your 60s, so you might want to explore lower risk investment options like bonds. 
• State Pension: You’ll begin receiving your State Pension once you’re 66 (rising to 67 in 2028) and you claim for it. Click here to check if you have enough qualifying years for a full State Pension.

Pension types frequently asked questions

Can I have multiple pension types at once?

Yes you can, but your pension tax relief and personal allowances are fixed, so having numerous pensions may not be advantageous unless each one serves a different financial need, purpose or goal.

Does my workplace pension stay with me if I change jobs?

The funds you’ve built up are still yours and will most likely continue to grow, even if you stop paying in. You might be able to keep your current pension active in your next job but the more likely scenario is that your new employer will want to enrol you into their scheme. At this point you can consider consolidating the first pension into the second one. 

Are personal pensions necessary if I already have a workplace pension?

Personal Pensions aren’t always necessary if you have a Workplace Pension in Place, but you may see benefits in running both; especially if your Personal Pension offers benefits, facilities or a level of flexibility that your workplace pension doesn't.

How does tax relief work for each type of pension?

There are two key systems for tax relief on pension contributions:

• Net pay schemes see your pension tax relief handled there-and-then by your employer at the payroll end 
• Relief-at-source schemes deduct 80% of your pension contribution after income tax has been deducted. When this is paid into your pension your provider will automatically add the remaining 20% as tax relief. Higher and additional rate taxpayers may need to submit a self-assessment to claim their full tax relief entitlement. 

For many workers the result is the same but the scheme you’re in matters if you’re a lower earner or a higher earner.

What is the most common pension type?

Defined Contribution schemes, which pay out based on what is paid in plus the growth of the investments in your pension, are far more common now than Defined Benefit (Final Salary) schemes, which pay a guaranteed income based on your tenure in a job and the final salary you received in that job. 

How do I check what pension type I have? 

Ask your employer or check your paperwork as you should have received onboarding documents when you first opened or enrolled in the scheme.