From the State Pension to workplace auto-enrolment, SIPPs to defined benefit schemes — understand every UK pension type, how they work, and how to build the retirement income you deserve.
£221.20Full State Pension/wk
£60,000Annual Pension Allowance
8%Min. Auto-Enrolment
20–45%Tax Relief Rate
Why Pensions Matter in 2026
Retirement planning has never been more important. With the State Pension providing a maximum of around £11,500 per year — well below the £37,300 that the Pensions and Lifetime Savings Association (PLSA) considers a "comfortable" retirement income for a single person — private pension savings are essential for most people in the UK.
The UK pension landscape in 2026 is increasingly diverse. The shift away from final salary (Defined Benefit) pensions in the private sector has placed greater responsibility on individuals to save adequately and invest wisely. Auto-enrolment has brought millions of workers into workplace pension saving, but minimum contribution rates are still too low for many people to retire comfortably without additional savings.
Understanding the different types of pension available — their rules, tax advantages, and how they interact — is the foundation of effective retirement planning. Whether you are just starting out, mid-career, or approaching retirement, this guide covers everything you need to know.
State Pension
Government
New State Pension
The new State Pension provides a guaranteed weekly income in retirement, funded through National Insurance (NI) contributions made throughout your working life. It is the bedrock of retirement income for most UK residents, but alone it is rarely sufficient for a comfortable retirement.
State Pension Key Facts (2025/26)
Full new State Pension: £221.20 per week (approximately £11,502 per year)
Qualifying years needed for full pension: 35 NI years
Minimum qualifying years for any pension: 10 NI years
State Pension age: 66 (rising to 67 between 2026–2028)
Increases annually by the "triple lock": higher of earnings growth, CPI inflation, or 2.5%
Available to those who reached State Pension age on or after 6 April 2016
Check Your NI Record
You can check your State Pension forecast and NI record on the HMRC website or the Check your State Pension service (gov.uk). If you have gaps in your NI record, you may be able to make voluntary Class 3 NI contributions (£824.20 per year in 2025/26) to fill them — often a very worthwhile investment. Use our State Pension Calculator to estimate your entitlement.
Old (Basic) State Pension
People who reached State Pension age before 6 April 2016 receive the old basic State Pension, up to £169.50 per week (2025/26). They may also receive additional State Pension (SERPS/S2P) on top. Different rules apply for this group. If you are in this category and deferred your State Pension, you may be entitled to a higher weekly amount.
Workplace Pension (Auto-Enrolment)
Defined Contribution
Workplace Pension
Since auto-enrolment was phased in from 2012, eligible employees are automatically enrolled into a workplace pension by their employer. Both the employee and employer contribute, and the government adds tax relief. This is the most common pension type for employed people in the UK.
Auto-Enrolment Rules
Mandatory for employees aged 22 to State Pension age earning £10,000+ from one employer
Minimum total contributions: 8% of qualifying earnings
Employer minimum: 3% — this is effectively free money
Qualifying earnings band (2025/26): £6,240 to £50,270 per year
You can opt out but you will re-enrol every 3 years
Many employers offer higher contributions if you contribute more
Don't Leave Free Money on the Table
If your employer matches contributions above the minimum (e.g., "we match up to 5%"), always contribute enough to get the full match. Opting out or under-contributing means giving up free employer money that is part of your compensation package.
Auto-Enrolment Example
Salary: £35,000. Qualifying earnings: £35,000 - £6,240 = £28,760.
At 7% annual growth over 30 years: approximately £226,000 pension pot (before any future pay rises or increased contributions).
Defined Benefit Pensions (DB)
Guaranteed Income
Defined Benefit (Final Salary / Career Average)
A Defined Benefit pension promises a specific income in retirement, calculated based on your salary and length of service. The employer bears all investment risk — you receive a guaranteed income regardless of market performance. These are considered "gold-plated" pensions and are now rare outside the public sector.
How DB Pensions Work
Most DB schemes use one of two benefit formulas:
Final Salary: Pension = (Accrual rate × Years of service × Final salary). Example: 1/60th accrual × 30 years × £40,000 = £20,000/year.
Career Average Revalued Earnings (CARE): Pension calculated based on average salary throughout service, revalued annually for inflation. Common in public sector schemes reformed since 2015.
DB Pension Features
Guaranteed income for life, regardless of investment performance
Usually inflation-linked (increasing with CPI or RPI)
Spousal pension typically 50%–67% paid on death
No investment decisions required from the employee
Increasingly restricted to public sector: NHS, teachers, civil service, police, fire service
Transferring out of a DB pension worth over £30,000 requires regulated financial advice
Defined Contribution Pensions (DC)
Investment Growth
Defined Contribution Pension
A Defined Contribution pension builds a pot of money based on contributions from you, your employer, and the government (tax relief), invested in funds of your choice. The final retirement income depends on contributions made and investment returns — you bear the investment risk.
DC Pension Types
Group Personal Pension (GPP): Arranged by employer; operates as individual personal pensions for each employee.
Stakeholder Pension: Low-cost flexible pension with limited charges (max 1.5% for first 10 years, 1% thereafter). Must accept contributions from £20.
Personal Pension: Individual pension arranged directly with a pension provider. More flexible than stakeholder in terms of investment choice.
SIPP (Self-Invested Personal Pension): Widest investment choice — see below.
Accessing DC Pension Benefits (From Age 57)
From age 57 (rising to 58 in 2028), you can access your DC pension pot. The options are:
Tax-free cash: Take up to 25% of the pot as a tax-free lump sum (capped at £268,275 lifetime limit).
Flexi-access drawdown: Move funds into drawdown and take income as needed (taxable at marginal rate).
Annuity: Use the pot to purchase a guaranteed income for life from an insurance company.
Uncrystallised Funds Pension Lump Sum (UFPLS): Take lump sums directly — 25% tax-free, 75% taxable.
Self-Invested Personal Pension (SIPP)
Full Control
SIPP — Self-Invested Personal Pension
A SIPP gives you the widest possible control over your pension investments. Unlike a standard workplace DC pension with a limited fund selection, a SIPP allows you to invest in a broad range of assets including individual UK and global shares, thousands of funds and ETFs, investment trusts, and even commercial property.
SIPP Key Features
Full investment control — choose from thousands of assets
Same tax relief as other pensions (20%, 40%, or 45%)
Same annual allowance (£60,000 or 100% of earnings)
Available to self-employed people without employer pensions
Can consolidate multiple old pension pots into one SIPP
Accessible from age 57 (2028: age 58)
Popular platforms: Hargreaves Lansdown, AJ Bell, Vanguard, Fidelity
SIPP for Self-Employed
If you are self-employed, a SIPP is often the best way to save for retirement. You claim tax relief through HMRC — contributing £800 to a SIPP as a basic-rate taxpayer results in £1,000 being added to your pot. Higher-rate taxpayers can claim additional relief through self-assessment, effectively making it even more valuable.
NHS, Teacher, and Civil Service Pensions
Public sector pensions remain among the most valuable in the UK, providing Defined Benefit (career average) income for life. All three major public sector schemes were reformed to career average arrangements from 2015 (and 2022 for those previously protected).
Scheme
Type
Accrual Rate
Normal Pension Age
Employee Contribution
NHS Pension Scheme (2015)
Career Average (CARE)
1/54th per year
State Pension Age
5.2%–13.5%
Teachers' Pension Scheme
Career Average (CARE)
1/57th per year
State Pension Age
7.4%–11.7%
Civil Service (Alpha)
Career Average (CARE)
2.32% per year
State Pension Age
4.6%–8.05%
Local Government (LGPS)
Career Average (CARE)
1/49th per year
State Pension Age
5.5%–12.5%
These schemes include death in service benefits, survivor's pensions, and ill-health retirement provisions. The employer contribution rates are substantial — up to 23% for the NHS scheme — making them far more valuable than typical private sector arrangements.
Lifetime ISA for Retirement
Bonus Savings
Lifetime ISA — Retirement Use
Although primarily marketed for first home purchase, the Lifetime ISA can also be used for retirement from age 60. The 25% government bonus makes it a compelling supplement to a pension, particularly for self-employed individuals who lack employer pension contributions.
LISA for Retirement: Pros and Cons
Pro: 25% government bonus on contributions (up to £1,000/year)
Pro: Withdrawals from age 60 are completely tax-free (unlike pensions, which are 75% taxable)
Pro: Flexible investment options (Cash LISA or Stocks and Shares LISA)
Con: No employer contributions available
Con: Annual contribution limit of only £4,000 (vs £60,000 pension annual allowance)
Con: 25% withdrawal penalty if accessed before 60 for non-qualifying purposes
Con: No tax relief on entry (unlike pension), so less efficient for higher/additional-rate taxpayers
Pension Tax Relief Explained
Tax relief is the government's incentive to encourage pension saving. When you contribute to a pension, you receive relief from income tax at your marginal rate — effectively meaning the government tops up your contributions.
Tax Rate
Your Contribution
Government Adds
Total in Pension
Effective Cost to You
Basic Rate (20%)
£800
£200
£1,000
£800
Higher Rate (40%)
£800
£200 + £200 claim
£1,000
£600
Additional Rate (45%)
£800
£200 + £250 claim
£1,000
£550
How Relief at Source Works
Most personal pensions and SIPPs use "relief at source" — you contribute your net amount, and the provider claims basic-rate tax relief and adds it to your pension within 6-10 weeks. Higher and additional-rate taxpayers must claim the extra relief through self-assessment. Workplace pensions often use "net pay arrangement" where contributions are taken before tax, automatically giving full relief.
Annual Allowance 2025/26
The pension annual allowance — the maximum you can contribute with tax relief — is £60,000 for 2025/26, or 100% of your annual earnings if lower. This includes contributions from both you and your employer. High earners with "adjusted income" above £260,000 face a tapered annual allowance reducing to a minimum of £10,000.
If you have not used your full annual allowance in the previous 3 tax years, you may be able to carry forward the unused amount and make a larger contribution this year (subject to earnings limits). This is particularly useful for self-employed people with variable income.
Pension vs ISA — Which Is Better for Retirement?
Feature
Pension
Stocks & Shares ISA
Lifetime ISA
Tax on contributions
Tax relief (20–45%)
None (after-tax money)
25% bonus (equivalent to 20% relief)
Tax on growth
None
None
None
Tax on withdrawal
75% taxable as income
0%
0% from age 60
Annual allowance
£60,000
£20,000
£4,000
Employer contributions
Yes
No
No
Access age
57 (rising to 58)
Any time
60 (or first home)
IHT treatment
Outside estate (currently)
In estate
In estate
Best for
Higher earners, employed
Flexible medium-term saving
Self-employed, first-time buyers
Recommended Order of Savings
1. Contribute enough to workplace pension to get full employer match (free money). 2. Build a cash emergency fund (3-6 months' expenses) in a Cash ISA or easy-access savings. 3. Max ISA allowance (£20,000) for flexible tax-free savings. 4. Increase pension contributions up to annual allowance for maximum tax relief. 5. Consider additional investments in a general investment account if further capacity exists.
How to Consolidate Multiple Pensions
The average UK worker changes employer 11 times during their career. Each job change can leave behind a pension pot with a previous employer's scheme. Tracking and consolidating these pots can simplify management, potentially reduce charges, and make it easier to see your total retirement position.
Steps to Consolidate Your Pensions
Track down lost pensions: Use the government's free Pension Tracing Service (gov.uk/find-pension-contact-details) if you do not know your old providers.
Get transfer values: Contact each provider and request a current transfer value (CETV for DB schemes).
Check for exit penalties or protected benefits: Some older pensions have valuable guaranteed annuity rates or protected tax-free cash that could be lost on transfer.
Check DB transfer rules: Transferring a DB pension worth more than £30,000 requires regulated financial advice by law.
Initiate the transfer: Your new provider (e.g., a SIPP) will usually manage the transfer process. Cash transfers take days; in-specie transfers can take weeks.
Review regularly: Once consolidated, review your pension annually and rebalance as needed.
The full new State Pension in 2025/26 is £221.20 per week (approximately £11,502 per year). You need 35 qualifying National Insurance years to receive the full amount, and a minimum of 10 qualifying NI years to receive any State Pension at all. The State Pension age is currently 66, rising to 67 between 2026 and 2028. The amount increases each year by the triple lock: the higher of earnings growth, CPI inflation, or 2.5%.
What is auto-enrolment and who qualifies?
Auto-enrolment requires employers to automatically enrol eligible workers into a workplace pension. You qualify if you are aged 22 to State Pension age, earn at least £10,000 per year from a single employer, and work in the UK. Minimum contributions are 8% of qualifying earnings: at least 3% from the employer and 5% from the employee (which includes 20% tax relief). You can opt out but your employer will re-enrol you approximately every 3 years.
What is the difference between a Defined Benefit and Defined Contribution pension?
A Defined Benefit (DB) pension pays a guaranteed income in retirement based on your salary and years of service — the employer bears the investment risk and promises a specific level of income. A Defined Contribution (DC) pension builds a pot based on contributions and investment returns — you bear the investment risk and the final income depends on how the pot performs. DB pensions are increasingly rare in the private sector but remain common in public service jobs.
What is a SIPP and how is it different from a workplace pension?
A Self-Invested Personal Pension (SIPP) is a type of personal pension that gives you full control over your investment choices. Unlike a standard workplace pension with a limited fund selection, a SIPP allows investment in UK and global shares, thousands of funds and ETFs, investment trusts, and even commercial property. SIPPs are popular with self-employed people and those consolidating multiple pension pots, and offer the same tax relief and annual allowance as other pensions.
How much pension tax relief do I get?
Pension contributions receive tax relief at your marginal income tax rate. Basic-rate taxpayers (20%) effectively pay £800 to add £1,000 to their pension. Higher-rate taxpayers (40%) can claim an additional 20% relief through self-assessment, reducing the effective cost of a £1,000 contribution to £600. Additional-rate taxpayers (45%) can claim 25% additional relief, making the effective cost just £550. This makes pensions especially powerful for higher earners.
What is the pension annual allowance for 2025/26?
The annual allowance for pension contributions qualifying for tax relief is £60,000 for 2025/26, or 100% of your annual earnings if lower. This covers contributions from both you and your employer. High earners with "adjusted income" above £260,000 face a tapered annual allowance reducing to a minimum of £10,000. Unused allowance from the previous 3 tax years can be carried forward and used in the current year.
How can I consolidate multiple pension pots?
You can transfer most DC pension pots into a single pension — usually a SIPP or your current employer's scheme. First, track down any lost pensions using the government's Pension Tracing Service. Then contact each old provider for a transfer value. Check for exit penalties, guaranteed benefits, or protected tax-free cash before transferring. For DB pensions worth over £30,000, regulated financial advice is required by law before transferring. Your new provider typically manages the transfer paperwork.
When can I access my pension in the UK?
For most DC pensions and SIPPs, you can access your pension from age 57 (rising to 58 in 2028). From that age, you can take up to 25% of your pot as a tax-free lump sum (capped at £268,275), then use the remainder for drawdown or an annuity. The State Pension becomes payable at State Pension age (currently 66, rising to 67). DB pensions have a "Normal Pension Age" set by the scheme rules — typically State Pension age for public sector schemes reformed post-2015.
MB
Mustafa Bilgic
Financial Content Writer | UK Calculator
Mustafa specialises in making UK retirement planning and personal finance accessible to everyday readers. He covers pensions, ISAs, tax relief, and savings strategies across the UK Calculator network.