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Most pensions follow a simple process:
If you’re younger and can’t work due to your health, you may be able to access your pension earlier. This is known as an ill-health, early medical pension, or retirement on medical grounds.
If possible, leaving your pension until you’ve stopped full-time work can give your savings more time to grow. Also, be wary of firms offering early access before 55, as this could lead to a 55% tax charge and potential scams.
You can choose who will receive your pension when you die. Usually, pensions are not part of your estate and are free from inheritance tax. From April 2027, unused pensions and most pension death benefits become part of an individual’s estate.
Considering a mix of workplace, private, and state pensions can help secure your financial future.
Workplace pensions are savings plans set up by your employer. Both you and your employer contribute a percentage of your earnings, with added tax relief from the government. Some employers match extra contributions, helping your savings grow faster.
There are 2 main types:
Your employer automatically enrols you if:
If you don’t qualify, you can ask to join. Employers typically contribute at least 3% and you add at least 5% of qualifying earnings, such as your salary or overtime – within government-set limits. Your employer deducts payments directly from your pay, making it easy to save.
Yes, you can opt out by contacting your pension provider. However, you should think carefully before doing so, as you’ll miss out on your employer’s contributions. This means you could have less money in your pension pot when you retire.
While contributions from you and your previous employer will stop, the money in that pension pot remains invested and belongs to you. You can leave it where it is, transfer it to your new employer’s scheme, or combine it with other pensions.
When you take your pension, 25% is usually tax-free. The rest is taxed as income.
Salary sacrifice lets you reduce your salary in exchange for higher employer pension contributions. This saves you money on tax and National Insurance while boosting your pension pot.
Private pensions – or personal pensions – are savings plans you arrange yourself.
A self-invested personal pension (SIPP) gives you more control over your investments, such as funds, shares, and trusts – tailoring your retirement savings to your goals.
Key benefits include:
Keep in mind: investments can go up or down, and you might get back less than you invest. Tax benefits depend on your circumstances and may change.
A self-invested personal pension offers flexibility in how you contribute. Here's how it works:
Typically, 25% can be taken tax-free, either as a lump sum or through smaller, regular payments (known as phased drawdown). For the remaining 75%, you have these options:
To make the most of your tax allowances and avoid unnecessary charges, be sure to plan your withdrawals carefully.
The state pension is a regular government payment providing basic income at state pension age. You qualify by paying National Insurance during your working life or while caring for children or claiming certain benefits.
The amount depends on your National Insurance record – generally, the more years you’ve contributed, the more you’ll receive. It’s paid every 4 weeks for life but may not cover all your retirement needs.
Yes, your state pension is considered taxable income. However, you’ll only pay tax if your total annual income is higher than the standard UK personal allowance (£12,570 until the 2030 to 2031 tax year). You stop paying National Insurance when you reach state pension age. National Insurance isn’t due on pension income.
To receive your state pension, you need to claim it, as it doesn’t start automatically. The government will send a letter about 2 months before you’re eligible. If not, you can apply online or by phone.
Pension credit is a government benefit to help low-income individuals over state pension age. Eligibility depends on your circumstances.
Starting a pension early is one of the best ways to prepare for your future. The sooner you begin, the more time your money has to potentially grow, which can help reduce financial pressure later in life.
Whether you’re in your 20s, 30s, or 40s, our retirement planning checklist offers practical tips to help.
If you haven't started yet, don't worry. While you may need to save a bit more to reach your goals, there are still ways to build your retirement pot.
When selecting a pension plan, consider these key factors:
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This article was last updated: 25/03/2026, 07:49
