Pensions are a form of tax privileged “wrapper” that allow you to save money for your retirement, this article will outline the types of pensions available in the UK.

Defined contribution pension

This is probably the most widely available type of pension available in the UK. If you are in employment and meet the basic criteria, your employer has likely enrolled you into a defined contribution pension scheme. There are a number of defined contribution type arrangements, personal pensions, self invested personal pensions (SIPPS) and others. These pensions will allow you to invest your contributions into property, shares, cash deposits, mutual funds and more.

They are typically funded by you, your employer or a mixture of both. Contributions are paid and they are invested over time. You bare the risk in the sense that if you make poor investment decisions or do not contribute enough, then your pot will directly reflect this. The big selling point for pensions is that you get tax relief at your marginal rate. For a higher rate tax payer, this means that every £1 into your pension could be costing you as little as 60p or less!

When you ultimately retire, the goal is you’ll have a pot of money large enough to provide you with an income in retirement. There are a number of options available to you at retirement, these will be the subject of another article but you can find a helpful resource here.

Final salary or “Defined Benefit” pensions

You are unlikely to have one of these, but if you do, count yourself lucky! They are employer sponsored schemes that give you a promise of certain amount of income at retirement. The costs in maintaining these have meant that they are far less common now. Final Salary pensions are different to defined contributions because you as the employee bare no responsibility for the investment choices or decisions. You have the assurance from the scheme that they will pay you an often inflation linked pension for the rest of your life.

The State Pension

The clue is in the name for this one, the State sponsors this and you’ll need a sufficient National Insurance contribution record to be eligible. The current State Pension is £9,627.80 per annum or £185.15 per week. Depending on your circumstances you could be entitled to a little more or less than this. You can check your entitlement for free here Check your State Pension forecast – GOV.UK (

What type of pension should you choose?

Unfortunately, you are unlikely to obtain a final salary pension nowadays. You are likely going to be enrolled into a defined contribution pension. If you are self employed, you’ll need to set one up yourself, as soon as you can do. For some ideas on how to maximise your pension savings, visit our earlier blog Three ways to boost your workplace pension – Sterling & Law – Rayleigh (

So there you have it, three different types of pensions. There are a number of other features or guarantees that your pension could have not included in the above. If you are confused by your pension options and would like local independent pension advice, please get in touch via the details below. The first meeting is always on us. Not local? We’re always happy to meet via videoconferencing.



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