Your
Pension

A pension is simply a long-term savings plan which you build up over your working life so you have enough income to live off in later life. It also offers favourable tax treatment compared to other ways of saving.

• You pay in money regularly
• You get a top up from the government
• Your employer can pay in money too
• You can pay into someone else’s (like a spouse or child’s)
• Money can grow free of UK tax
• It’s usually invested in the stock market to give it the best chance to grow
• You can normally withdraw up to 25% tax free
• You have a pot of cash to live on when you semi-retire or give up work completely

You can’t usually take money out until you’re at least 55 (rising to 57 from 2028). Investments can go down as well as up in value.

Here are the main types of pension you're likely to come across:

• State Pension - At state pension age, the government pays you a guaranteed income for the rest of your life. Currently up to £175.20 per week.
• Workplace Pension - Employers must set up a workplace pension scheme, and in most cases automatically enrol their employees and pay into it on their behalf.
• Defined Benefit Pension - Largely funded by employers, you get a guaranteed income in retirement. Types include final salary schemes.
• Self-Invested Personal Pension (SIPP) - A modern pension that allows you to choose from a wide range of investments.
• Stakeholder pension - A simple pension with low minimum contributions, capped charges and limited investment options.

Most people can pay in up to £40,000 a year into all their pensions in total. This is known as the annual allowance. You may find your allowance is less or more than this depending on whether or not you’re working and how much you earn, or if you’ve already taken money from your pension.

More on paying into a pension

This is a top up from the government which gives you an extra incentive to save. As long as you’re a UK resident under 75 you’ll automatically get 20% on top as tax relief on whatever you pay in, subject to certain limits. You could claim even more if you pay a higher rate of tax.

Find out more about tax relief