Introduction to workplace, personal and stakeholder pensions
Information on personal pensions, stakeholder pensions, workplace pensions, how to start a pension, pensions for the unemployed and how much you can pay into your workplace or personal pension.
Personal pensions
Personal pensions are available from banks, building societies and life insurance companies. They invest your savings on your behalf.
You can save as much as you want in a personal pension. You will get tax relief on the amount you put in up to the annual allowance.
Find out if a personal pension would be suitable for you and more about tax advantages of personal pensions at the link below:
Stakeholder pensions
Stakeholder pensions are personal pensions. They have to meet certain government standards which are designed to make sure they are good value.
Find out more about these standards and whether a stakeholder pension may be right for you in 'Stakeholder pensions'.
Workplace pensions
A workplace pension is arranged through your employer as a way to save for your retirement. An employer will enrol eligible employees into a workplace pension. You can choose to opt out of this pension. If you stay in you’ll have a pension for your retirement.
Pensions for the self-employed
If you're self-employed you may need to pay class 2 National Insurance contributions. These will entitle you to the basic State Pension, but not the additional State Pension.
National insurance if you're self-employed
If you want to receive more than the basic State Pension when you retire, you could set up a personal or stakeholder pension. You'll then make regular payments to build up savings for your retirement.
Pensions for the unemployed
If you are unemployed you can receive National Insurance credits towards your basic State Pension provided you receive or received Jobseeker’s Allowance.
Starting a pension
You can join a pension scheme through your job or start paying into a personal pension. You don’t necessarily need to have one type or the other – you can have both.
Personal pensions
You can start paying into a personal pension at any time – whether you are employed, self-employed or not working. Banks, building societies and life insurance companies provide personal pensions. You can decide how much money you pay in. Personal pensions must meet government standards to make sure they are good value.
You can save as much as you like into a personal pension. It won't affect your entitlement to the basic State Pension. You'll be able to get tax relief on the amount you put in, up to an annual allowance. So, for each pound you put into your pension, the government tops it up using money it would normally have taken from you as tax.
Automatic enrolment into workplace pensions
Your employer must automatically enrol you into a workplace pension scheme unless you are already in a suitable scheme. Most employees who earn more than £10,000 a year are eligible. On top of any contributions made by you, your employer will pay in, and the government will contribute through tax relief. You can opt out if you want.
If you think you have a pension but can’t remember the details, you can contact the Pension Tracing Service
How much you can pay into your workplace/personal pension
You can contribute as much as you want into any number of workplace and personal pension schemes. Each year you'll receive tax relief on your pension contributions up to 100 per cent of your UK earnings (salary and other earned income). This is limited to an 'annual allowance' above which tax will be charged.
For more information on the current annual allowance for tax relief, go to the section below ‘Tax relief on pension contributions.'
Pension rules from April 2006
In April 2006 pension rules changed for personal and workplace schemes. The rules allow most people to pay more into their pension schemes - and on more flexible terms.
Saving more into your pension
You can save as much as you want in any pension scheme. The rules for claiming tax relief on your pension contributions are also more flexible, though tax charges will apply if you go above certain allowances.
Pension contribution limits
You can contribute as much as you like into any number of pension schemes (personal or workplace or both) each year. There is no upper limit to the total amount of pension saving you can build up.
Tax relief on pension contributions
Each year you’ll receive tax relief on your pension contributions of up to 100 per cent of your UK earnings (salary and other earned income). This is limited by an 'annual allowance' above which tax will be charged (more below).
If you have little or no earnings and are in a 'relief at source' scheme, you will still get tax relief. You can find out more about government contributions at the link below:
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Pension administrators: reclaim tax relief using relief at source
Annual allowance above which contributions will be taxed
Find out more about the current annual allowance for tax relief at the link below:
If the pension savings made by you or your employer are more than the annual allowance, you'll be charged an annual allowance tax charge. However, if you haven't used all of your annual allowance in the last three tax years you may not have to pay this charge.
The amount not included in the annual allowance will be added to the rest of your annual taxable income. Your tax charge rate will be the rate that is right for the total amount of your excess pension savings plus other taxable income. You'll need to complete a self assessment tax return to pay this tax charge.
Follow the link to Income Tax to find the tax rates that apply to income and savings.
The amount of your pension saving is measured over a ‘pension input period’. Pension input periods don't necessarily cover the same period as a tax year.
Lifetime allowance
You can save as much as you like for your pension but there is a limit on the amount of tax relief you can get. The lifetime allowance is the maximum amount of pension saving you can build up over your life that benefits from tax relief.
If you build up pension savings worth more than the lifetime allowance you'll pay a tax charge on the excess.
If you took your pension on or after 6 April 2023, there is no lifetime allowance charge. This applies if you took it as a lump sum or any other way, for example pension payments or cash withdrawals. Instead you’ll pay Income Tax on some or all of the lump sum.
Your pension provider will take off the charge before you get your payment.
The lifetime allowance applies to any pension savings you have in:
- a registered pension scheme
- an overseas pension scheme that qualifies for UK tax relief for either you or your employer on or after 5 April 2006
Most people won't have to pay the lifetime allowance charge.
For more information, go to:
Flexible pension scheme investments
Since April 2006 certain pension schemes are allowed a wider choice of investments, under certain rules. To find out more, speak to a pensions adviser.
How and when you take your pension
There is now more choice for how and when you can take your pension benefits - as described below. However, pension schemes have to keep to individual rules, so you'll need to check with your pension administrator what your particular scheme allows.
There are three choices:
- take a scheme pension - a secured pension for life paid out of the scheme assets or purchased from an insurance company
- buy an annuity (an investment that provides a regular income for life)
- draw an income directly from your pension fund, as a draw-down pension
Tax-free lump sum
All types of pension schemes can pay a tax-free lump sum of up to 25 per cent of the overall value of your benefits as long as there is provision in the scheme rules. This lump sum cannot exceed 25 per cent of the lifetime allowance limit.
Working and drawing your workplace pension
If you're a member of a workplace pension scheme, you don't need to leave your job to draw your lump sum and a pension.
You may also be able to draw all or some of your lump sum and pension while still working full or part-time for the same employer, depending on the pension scheme's rules.
Changes to pension ages
Since April 2010, the minimum age when you can take your workplace or personal pension increased from 50 to 55 for most people.
However, you may still be able to take your pension before age 55 in certain circumstances. For example if you are unable to work due to ill-health. Your pension administrator will be able to tell you what your scheme allows.
Changes to State Pension age
State Pension age is increasing. To find out more see ‘Calculating your State Pension age’.