The UK pension system is designed to provide financial support for individuals in retirement. It’s mainly divided into three parts: the State Pension, Workplace Pensions, and Personal Pensions. Here’s an overview of the rules and amounts for each:
State Pension
The State Pension is provided by the government to people who have paid or been credited with enough National Insurance (NI) contributions during their working years.
Types of State Pension
Basic State Pension (for those who reached State Pension age before 6 April 2016):
The amount you receive is based on your National Insurance contributions.
For the 2024/2025 tax year, the maximum Basic State Pension is £176.45 a week. You’ll get the basic State Pension if you’re a man born before 6 April 1951. a woman born before 6 April 1953.
New State Pension (for those who reached State Pension age on or after 6 April 2016):
As of now, the State Pension age is 66, but it’s due to rise to 67 between 2026 and 2028, and possibly 68 in the future.
Pension Credit
If your income is low in retirement, you may be eligible for Pension Credit, which is an additional benefit for people over the State Pension age.
Workplace Pensions
Most people in the UK are automatically enrolled in a workplace pension scheme by their employer, though you can opt out.
Automatic Enrolment
If you’re between 22 and the State Pension age and earn at least £10,000 a year, your employer must automatically enrol you into their pension scheme.
Contributions
Both you and your employer will contribute to the pension. The current minimum total contribution is 8% of your qualifying earnings. This includes:
- At least 5% from you (including tax relief)
- At least 3% from your employer
- The pension scheme may offer options for investing the money, and the value of your pension will depend on the contributions and the performance of those investments.
Personal Pensions
A Personal Pension is a pension plan you arrange yourself, usually through a private provider. You can choose how much to contribute and how the money is invested.
Contribution Limits
There’s an annual allowance of £60,000 (as of the 2024/2025 tax year) on the amount you can contribute to personal pensions and receive tax relief. If you exceed this, you may be subject to tax penalties.
Tax Relief
Contributions to pensions usually receive tax relief, which means you get back some of the tax you’ve paid on your income. For basic-rate taxpayers, this means for every £80 you contribute, the government adds £20. Higher-rate taxpayers can claim back more through their tax return.
Pension Taxation
You can take up to 25% of your pension pot as a tax-free lump sum when you reach the age of 55 (this will rise to 57 in 2028). The remaining 75% of the pension pot is taxed as income when you take it.
