Pensions can feel like a maze of jargon, but the basics are simple, and understanding them early makes a huge difference. This guide covers the three types most people will have: a workplace pension, a SIPP and the State Pension.
This is general information, not financial advice. Rules can change, so check GOV.UK or MoneyHelper for the latest.
Why pensions are so powerful
Pensions have three big advantages:
- Tax relief going in. The government tops up your contributions, so £100 in your pension can cost a basic-rate taxpayer £80, and even less for higher-rate taxpayers. See how pension tax relief works.
- Tax-free growth. Investments inside a pension grow free of UK Income Tax and Capital Gains Tax.
- Employer contributions. With a workplace pension, your employer pays in too.
The trade-off: you can’t normally touch the money until your 50s.
1. Workplace pensions
If you’re employed, aged 22 or over and earn above a set threshold, your employer must automatically enrol you. The minimum total contribution is 8% of qualifying earnings, with at least 3% from your employer.
Most workplace pensions are defined contribution: your pot depends on how much goes in and how the investments perform. Some, often in the public sector, are defined benefit (final salary or career average), which pay a guaranteed income, and are very valuable.
Your to-do list: get the full employer match, and check which fund you’re invested in. Our guide to getting more from your workplace pension walks you through it.
2. SIPPs (self-invested personal pensions)
A SIPP is a personal pension you open yourself with a provider. It’s useful if:
- You’re self-employed and have no workplace pension
- You want to combine old workplace pensions in one place
- You want a wider choice of investments, such as low-cost global index funds or ETFs
- You want to pay in extra beyond your workplace scheme
With a SIPP, your provider claims basic-rate tax relief for you and adds it to your pot. Compare platform fees carefully, as they vary a lot between providers.
3. The State Pension
The full new State Pension is £241.30 a week from April 2026, about £12,500 a year. How much you get depends on your National Insurance record: you usually need 35 qualifying years for the full amount and at least 10 for any.
The State Pension age is currently 66 and is rising to 67 between 2026 and 2028. Check your State Pension forecast on GOV.UK. It’s free, takes five minutes, and shows any gaps in your record.
The key numbers for 2026/27
| Rule | 2026/27 |
|---|---|
| Annual allowance (most people) | £60,000, or 100% of earnings for tax relief on your own contributions |
| Tapered allowance | Can fall to £10,000 for very high earners |
| Money purchase annual allowance | £10,000 once you’ve flexibly accessed a pension |
| Tax-free lump sum | Usually 25%, capped at £268,275 for most people |
| Minimum access age | 55, rising to 57 from April 2028 |
Good to know: If you’ve already started taking taxable income from a defined contribution pension, your allowance for future contributions usually drops to £10,000 a year. Plan before you dip in.
Taking your pension
From the minimum age, you can usually take up to 25% tax-free. The rest is taxed as income, whether you take it as a regular income (drawdown), buy a guaranteed income (an annuity) or take lump sums. Taking large amounts in one tax year can push you into a higher tax band, so it pays to plan. The government’s free Pension Wise service offers guidance from age 50.
The short version
Pensions get tax relief going in, grow tax-free and, at work, come with employer contributions. Most people will have a workplace pension, may open a SIPP for extra flexibility, and will get the State Pension based on their National Insurance record. Get the full employer match, check your investments, check your State Pension forecast, and remember that private pensions can’t usually be accessed until 55, rising to 57 in 2028.
Common questions
What's the difference between a workplace pension and a SIPP?
A workplace pension is set up by your employer, who also pays in. A SIPP (self-invested personal pension) is one you open yourself, with a wider choice of investments. Many people have both.
How much can I pay into a pension?
The standard annual allowance for 2026/27 is £60,000, including employer contributions. You can only get tax relief on personal contributions up to 100% of your earnings. High earners and people who've already accessed a pension may have a lower allowance.
How much is the State Pension?
The full new State Pension is £241.30 a week from April 2026. You usually need 35 qualifying years of National Insurance to get the full amount. Check your forecast on GOV.UK.
Can I take all my pension as cash?
You can usually take up to 25% tax-free, up to a limit of £268,275 for most people. The rest is taxed as income when you take it, so taking a large amount at once can push you into a higher tax band.
This article is general information, not personal financial advice. Your situation is your own, so check the details for yourself or speak to a regulated adviser before making big decisions. Where investments are mentioned, their value can go down as well as up.
