Types of pensions

Pension types

Here you’ll find a breakdown of the various types of pensions out there, giving you a clear understanding of what’s on offer.

What types of pensions are there?

When it comes to saving for retirement in the UK, there are typically 3 main types of pensions:

• The State Pension – linked to your National Insurance contributions
• Workplace pensions – contributions from both you and your employer
• Private pensions – your own contributions and investment choices

State pension

To qualify for the state pension, you need to have paid National Insurance contributions for at least 10 years, which can be through working, self-employment, or certain benefits. For a full State Pension, you need 35 qualifying years of contributions. If you have fewer than 35 years, you’ll get a proportionate amount. Additionally, you must be at least 66 years old to claim your State Pension, although this age is set to rise in the coming years.

How much is the State Pension?

As of 06 April 2025, the full State Pension is £230.25, which adds up to £11,973.00 a year. Every year, the State Pension amount rises based on the highest rate of inflation, average earnings, or by 2.5% – known as the ‘triple lock’.

Workplace pension

With a workplace pension, you contribute a certain amount from your job each pay period. In addition, your employer pays in as well, and you either don’t pay tax on your contributions (net pay arrangement) or you can benefit from government tax relief (relief at source). This effectively gives you ‘free’ money towards your retirement.

Workplace pensions typically come in the form of a ‘defined contribution‘ or ‘defined benefit‘ scheme. The People’s Pension is a type of pension known as ‘defined contribution’. This means that the amount you get at retirement depends on the amount you’ve contributed along with charges and investment performance.

Private pension

Private pensions are personal retirement savings plans that you set up independently, separate from any employer-sponsored schemes. Typically structured as defined contribution plans, the amount you receive in retirement depends on how much you contribute over time and the performance of your investments.

Private pensions give you full control over your investments, with no default options, allowing you to choose from a range of available assets. These are sometimes called self-invested personal pensions (SIPP).

Types of pension plans

There are two main types of workplace and private pension schemes:

• Defined benefit – a guaranteed income based on salary and years of service, regardless of investment performance.
• Defined contribution – the amount you save is invested, and the final payout depends on the investment’s performance over time.

Most pensions today are defined contribution, although defined benefit schemes still exist, particularly in the public sector.

Defined contribution

This is a type of savings scheme where regular contributions are made into a pension, which is then invested over time. The amount of money available at retirement depends on how much you’ve contributed, how the investments you’ve chosen perform, and the charges from a pension provider to manage your pension.

Defined contribution is common for both workplace pensions and private pensions, including ours, allowing individuals some level of flexibility with how they may want to build their pension savings.

Defined benefit

This is a type of retirement plan where your employer promises to pay you a certain amount of money each month after you retire, based on your salary and how long you worked for them. This means that no matter how the stock market does or how long you live, you’ll receive a steady income in retirement. As providing these types of pensions have become more complex and expensive for employers, defined benefit schemes have become less common.

There are some other types of pensions, such as contracted-out and Section-226 pensions, or with-profits plans, but these are typically only found in older pensions and aren’t likely to be available today.