Understanding pensions

The State Pension is a regular payment paid by the government. The age that you start getting the State Pension is rising. You can find out how much State Pension you have built up by calling the Future Pensions Centre on 0345 3000 168 or by visiting GOV.UK.

The State Pension only covers your basic needs. Many people also have a private or personal pension. These are either organised by your workplace or by yourself. The more you save into a private pension, the more money you will have when you retire.

There are different types of private pension. If you have a defined contribution scheme, the money you pay in is invested. The amount of money you get when you retire depends on many things. These include how much money you and your employer have paid into the scheme. If you have a defined benefit scheme, you will get a tax-free lump sum when you retire and a regular income for the rest of your life. The amount of money you get is based on either your final salary or your average salary during your employment.

State Pension

The State Pension is a regular payment from the UK government that most people get once they reach a certain age.

The State Pension age is currently 65 for men. The State Pension age for women is gradually rising from 60 to 65 and depends on when you were born. To find out when you will reach the State Pension age, visit GOV.UK.

You can find out how much State Pension you have by:

  • visiting GOV.UK
  • calling the UK government’s Future Pensions Centre on 0345 3000 168.

The new State Pension

A new State Pension has been introduced. You will get the new State Pension if you reach State Pension age after 6 April 2016.

The aim of this change is to simplify State Pensions. Some people who have not paid enough National Insurance may not be able to get the full amount. For more information, visit GOV.UK.

Further support

If you have a low income, you may be able to get extra support alongside your State Pension. This is called Pension Credit. You may also be able to get help towards other costs, such as housing.

The rest of this section is about workplace and personal pensions. We have more information about the State Pension and other benefits you may be able to get from the government.

‘We can help you understand your pension options.’

David, Macmillan Financial Guide


Private pensions

Private or personal pensions can either be:

  • arranged by your employer – these are called workplace pensions
  • arranged by you.

A workplace pension has the added benefit that your employer will pay into it, alongside the money you pay in. Employers must arrange workplace pensions for most of their workers by April 2019. This is called auto-enrolment. You can choose to opt out.

If you don’t have access to a workplace pension, you may want to arrange a pension yourself. It is best to get help from a financial adviser when doing this.

You get tax relief on money paid into any private pensions, which adds to your savings.

Types of private pensions

There are two types of private pension:

  • Any pension you arrange yourself will be a defined contribution scheme.
  • Workplace pensions can either be a defined contribution or defined benefit scheme.

Defined contribution schemes

This is where you build up a pot of money. If you have organised the pension through your employer, they will pay money in alongside your own contributions. The money is invested and hopefully grows over time.

The rules about defined contribution schemes changed in April 2015. You can now access your savings from the age of 55 and in new ways.

Defined benefit schemes

This is where your employer promises to pay an agreed amount when you retire. The amount you get is based on either:

  • your final salary
  • your average salary from across your time at the workplace.

These are also called final salary or career average schemes.

You may have a defined benefit scheme if you have worked for a large organisation or in the public sector for a long time. They are generally a good option but are now rarely offered to new workers.

If you have a defined benefit scheme, you will get a tax-free lump sum when you retire and a regular income for life. These schemes usually have a retirement age of 65.

Back to Pensions

Accessing your pension

There are different ways of accessing your pension. This depends on your pension type and your illness.