The different types of pensions you need to know about
There are different ways you can save for your retirement. We look at what different types of pensions there are and when you can start accessing your money.
Laura Miller
A pension is designed to support you and provide income when you retire so you can hopefully maintain the standard of living you had pre-retirement – or even enjoy a better one.
But stubborn inflation and rising energy bills mean the cost of a comfortable retirement has risen.
According to Pensions UK, a single person now needs income of £45,400 after tax for a comfortable retirement, while a couple needs £62,700 per year between them. A moderate retirement lifestyle now costs £32,700 for one person and £45,400 for two.
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Pensions UK said it expects just 9% of the working population to reach the comfortable level and 23% will be able to afford the moderate standard. The figures also highlight how pensioners cannot afford to rely solely on the state pension if they want to have a decent standard of living in retirement.
This is why having a holistic approach to pension planning is as important as ever. However, you can only access your pension pots at a certain age.
In this guide, we explain the different types of pensions and how they work.
State pension support
The government pays a state pension to men and women aged 66 and over. However the state pension age is increasing from 66 to 67 between April 2026 and March 2028. This will affect those born on or after 6 April 1960. The change is being phased in gradually, meaning the exact age depends on your birthdate, with the rise to 67 completed by 6 March 2028.
There are two types of state pension depending on when you were born.
A man born before 6 April 1951 will get the basic state pension, as will a woman born before 6 April 1953.
As of April 2026, the full basic state pension is £184.90 per week.
Anyone who reached state pension age on or after 6 April 2016 receives the new state pension; from April 2026 the full amount is worth £241.30 per week.
You will need 35 qualifying years of National Insurance contributions (NICs) to get the full new state pension, and a minimum of 10 to get anything.
If you have 11 to 34 qualifying years, the amount you receive is pro-rata. For example, someone with 20 qualifying years would receive £137.80. Each qualifying year is worth around £6.89 per week as of April 2026.
The state pension counts as taxable income, although you won’t be taxed if your total annual income is within the tax-free personal allowance, which is currently £12,570.
Both types of state pension are increased each year based on the triple lock mechanism, which commits to increasing the payments by the highest of UK average earnings, the Consumer Prices Index measure of inflation or 2.5%.
You can get a state pension forecast to find out how much new state pension you may get via the gov.uk website.
The state pension is only supposed to support a minimum standard of living in retirement though, so most retirees will also need separate savings.
That said, recent figures from retirement firm Just Group revealed around one million pensioners rely solely on the state pension for their income.
This is where private pensions come in.
Defined benefit pensions
If you work in the public sector, you will probably have some sort of defined benefit (DB) pension.
This is a set amount you will receive when you retire based on a combination of your final or average salary and your length of service.
Some large private sector companies may also offer DB schemes, also known as gold-plated pensions, but they have become rare as it puts all the investment risk on the employer as they need to ensure they can fund the payouts.
With the government heavily in debt, pension benefits are also being eroded in the public sector too.
So even if you have one of these pensions – and especially if you don’t – you should still be making other provisions for your retirement.
Defined contribution pensions
Since 2012, most private sector workers from age 22 have been automatically enrolled into a pension scheme through their employer.
The aim is to boost pension saving to ensure people have enough funds to support their retirement and aren’t as reliant on the state.
These are known as defined contribution (DC) pensions, with the onus on the employer and employee to put money into the pot, which is then managed by an investment provider and invested in a range of funds.
The government sets minimum contributions under auto-enrolment schemes.
It is currently 8%, and is known as the 8% rule. It is made up of at least 3% from the employer, 4% from the employee and 1% from pension tax relief.
Unlike a DB scheme, what you get in the end with DC schemes depends on how your investments perform between now and when you retire, as well as how much you contribute.
It is possible to opt out of a company auto-enrolment scheme after three months, but this means you won’t be saving for your retirement, and also won’t be receiving tax relief on your contributions.
Personal pensions
Personal pensions can be particularly useful for self-employed people who don’t benefit from being automatically enrolled into a workplace pension.
This can be set up directly with a pension provider, or through a financial adviser.
Another option is a self-invested personal pension (Sipp), available through DIY investment platforms or robo-wealth managers.
You get to choose exactly what to buy, and you can make changes as frequently or infrequently as you like.
It is worth comparing Sipp providers as they each offer access to different investments, and have different fees.
The tax benefits of pensions
Similar to an ISA, the investment growth in a pension is earned tax-free.
The other major benefit gained from saving into pensions comes in the form of pension tax relief.
For example, when a basic-rate taxpayer puts £80 into a pension, HMRC grosses it back up to £100, effectively giving you the 20% tax you paid on that £100 when you first earned it.
If you're a 40% or 45%-rate taxpayer, you only have to pay £60 or £65 respectively to make a £100 pension contribution.
Depending on the pension scheme, you either get the 20% basic-rate tax back from the taxman immediately, and then need to claim the rest back through a self-assessment tax return, or you'll get the full amount of tax relief. If you're not sure, check with your pension provider, or if it's a workplace scheme, ask your HR team.
The government offers pension tax relief as it encourages people to save for their retirement and decrease the likelihood they’ll be reliant on the state.
How much can you put into a pension?
You can contribute as little or as much as you like into a pension, but for claiming the full amount of tax relief, the annual pension allowance of £60,000.
If you are a very high earner, and your annual taxable income exceeds £260,000, you don't get the full allowance. Instead, it is reduced by £1 for every £2 of income that you earn over the threshold.
The maximum reduction is £50,000, meaning the highest earners only have a pension allowance of £10,000.
The earlier you start contributing, the larger your pot could be and the more chance you will have of smoothing out volatile times in your pension portfolio.
While the minimum auto-enrolment rate is 8%, the Association of British Insurers has suggested it should be at least 12% to deliver a better standard of living in retirement.
There is no sign from the government that it will increase this threshold, but employees are allowed to contribute more into their pensions than this level. Some employers will pay in extra money if the employee contributes more, so it's worth asking.
There used to be a lifetime allowance that capped the total amount that could be saved into a pension at just above £1 million, but this was scrapped in April 2024.
MoneyHelper has an online pension calculator that can help you work out how much you need for your retirement and what your pot could be worth.
When can I access my pension?
The whole point of pension saving is that you can only access the funds when you retire.
Although the state pension age is currently 66, it is possible to access your own private retirement savings earlier.
The normal minimum pension age is currently 55. There are circumstances where you may be able to get the money earlier, such as if you are ill or have a protected pension age in your policy.
Increase in normal minimum pension age
The normal minimum pension age is rising to 57 from 6 April 2028.
When the normal minimum pension age was last increased in 2010 (from age 50 to 55), the government put in place certain ‘transitional arrangements’ to ensure affected pension scheme members could continue to receive their pension benefits without interruption. “Similar provisions will be necessary for the 2028 increase,” the government has said.
For example, a pension scheme member who has already reached age 55 before 6 April 2028 may have met all the conditions to access their pension before that date. However, after 6 April 2028, that same member may not be able to receive an authorised payment until they reach age 57.
The aim of the transitional regulations is to ensure that members who have already become entitled to their pension benefits can continue to do so seamlessly.
These transitional provisions will only apply to members who have reached age 55 on or before 5 April 2028, and who would therefore have reached the existing normal minimum pension age at that time.
Under the proposals, people who are aged between 55 and 57 by April 2028 – when the minimum access age rises to 57 – who have already entered drawdown before this date will be able to continue to access their taxable pension pot.
But they will be unable to enter new drawdown arrangements until their 57th birthday – even if they have previously accessed their pension, taken tax-free cash and moved funds into drawdown. They also cannot set up a new annuity or start taking a pension from a defined benefit pension scheme until they reach age 57.
Rachel Vahey, head of public policy at AJ Bell, said: “This will disrupt some pension savers’ pension plans, putting a stop to those taking regular ad-hoc lump sums or in phased drawdown. It will also encourage more people within this group to fully access all their pension funds from an earlier age rather than adopt a more measured phased approach.
“It is effectively lobbing a grenade into the retirement plans of many people who will be aged 55 or 56 in April 2028 and are planning on accessing their pension savings early,” Vahey added.
Anyone caught by the new rules needs to consider how they will plug any income gap created – especially those who have set up a plan to phase in their retirement income.
“Those who have set up plans to regularly access their pension money – for example by taking a series of ad-hoc lump sums (uncrystallised funds pension lump sums, or UFPLSs) or setting up phased or drip-feed drawdown – will find their plans are scuppered under these new rules,” said Vahey.
“They will be forced to put these phased payments plans on hold in April 2028, unable to pick them back up until they blow out the candles on their 57th birthday cake, pushing many to go back to the drawing board and rethink their income plans.”
How to take your pension
You need to think about tax once you access your pension. The government lets you take 25% of it as tax-free cash.
The rest can then either be left invested – known as income drawdown – with any withdrawals subject to income tax, or you can use some or all of the money to buy a guaranteed retirement income, known as an annuity, which is purchased from an insurance company.
Timing and how much you take is key as you want to ensure the money doesn't run out. Many retirees follow a 4% pension withdrawal rule.
There are benefits to waiting longer to access your pot. The longer you stay invested, the more valuable your pot and income drawdown withdrawals could be.
Additionally, waiting until you are older to buy an annuity could give you a higher rate depending on your life expectancy. Annuity payments are also taxed as income.
However experts have warned the transitional rules for the raising of the minimum state pension age could create a perverse incentive for those who are 55 or 56 in April 2028 – in a bid to retain as much flexibility as possible – to access their entire pension savings, and in doing so take their full entitlement to tax-free cash and move the remainder into drawdown.
“Doing so will mean they will have more flexibility to take higher income payments before they reach 57, rather than be restricted to the drawdown funds they moved before April 2028. But worryingly, it also means they could miss out on additional tax-free cash,” said Vahey from AJ Bell.
Although you can take all your pension pot in one go, if you do not need all the tax-free cash immediately there’s some advantage in only accessing part of the pot. That way you can leave the untouched pension to grow in a tax-free environment, meaning the tax-free amount should also grow.
Why you should save into a pension
Pensions UK estimates that a single person would need a pension pot worth between £560,000 and £845,000 to achieve its comfortable standard of living. Couples would need £315,000 to £470,000 each.
That is a lot to put away and shows how important it is to have a savings pot dedicated to your retirement so you can still afford to live when your income drops.
The big problem with pensions is that the government can fiddle with them at any time.
The Treasury is often rumoured to be considering cutting higher-rate pension tax relief, although it has so far resisted this.
However, chancellor Rachel Reeves did announce that pensions would be included as part of the valuation of a person’s estate for inheritance tax purposes from April 2027.
The state pension age is also rising to 67 between April 2026 and April 2028, and 68 between April 2044 and April 2046, so there is a chance of having to wait longer to get your state payout.
Meanwhile, average life expectancies are expected to grow with increasing numbers of people living to 100, further justifying why it’s so important to start saving for retirement now.
This can be done by putting money into other products alongside your pension, such as ISAs, which can be accessed more easily, or even by purchasing assets such as buy-to-let property.
Just bear in mind that under 65s can only put £12,000 per year into cash ISAs from April 2027.
It is also worth checking the fees you are paying for your pension as these can eat into your returns. Make sure you’re happy with the fund you’ve been invested in through your workplace pension too. You may decide it doesn’t match your appetite to risk and you want to change it.
