Pension basics · Beginner guide

What is a pension? UK pensions explained.

A pension is a way to build income for later life. This beginner guide explains workplace pensions, personal pensions, State Pension, defined contribution and defined benefit schemes.

By Pension Bible editorial team·Last reviewed 14 May 2026·7 min read

Direct answer: what is a pension?

A pension is a long-term retirement arrangement. In simple terms, it is money or a promised income set aside for later life.

Most people in the UK encounter three broad pension types:

The word "pension" can mean any of these, so the first practical question is: is this a pot of money, a promised income, or the State Pension?

How a pension works

For a typical defined contribution pension, the process looks like this:

1. Money is paid in by you, your employer, or both.
2. Contributions usually receive pension tax relief.
3. The pension provider or trustees invest the money.
4. The pot can grow or fall depending on markets, charges and contributions.
5. From the minimum pension access age, the pot can be used for retirement income.

This is the type of pension most private-sector workers now build through auto-enrolment. It is also the structure used by personal pensions and most SIPPs. The defined contribution pension guide covers pot-based pensions in more detail.

With a defined contribution pension, there is no guaranteed final pot. The outcome depends on how much goes in, investment performance, charges, retirement age and withdrawal choices.

Workplace pensions

A workplace pension is arranged by an employer. Under auto-enrolment rules, eligible workers are put into a pension scheme automatically, and the employer must contribute.

The common legal minimum is based on qualifying earnings:

Qualifying earnings are not always the same as full salary. Under most schemes, they are the band of earnings between £6,240 and £50,270 a year in 2026/27.

The employer contribution is the reason workplace pensions matter. If an employee opts out, the employer contribution normally stops too.

If your employer uses salary sacrifice, contributions may also reduce National Insurance. The salary sacrifice calculator can model the difference.

Personal pensions and SIPPs

A personal pension is one you arrange yourself. GOV.UK describes personal pensions as pensions where the eventual pension usually depends on how much was paid in, how investments performed and how the money is taken.

Common personal pension types include:

• standard personal pensions;
• stakeholder pensions;
• SIPPs, which give more control over investments.

Personal pensions are often used by self-employed people, people without a workplace scheme, or savers who want to build retirement savings outside their employer's pension.

The important distinction: a personal pension does not usually come with an employer contribution unless the employer has specifically agreed to pay into it. For employed people, the workplace pension often needs to be understood first.

Defined contribution vs defined benefit

The DC/DB distinction is one of the most important pension basics.

A defined contribution pension is easier to understand as a pot. A defined benefit pension is closer to a promise.

That promise can be valuable because it may provide income for life, often with inflation increases and dependant benefits. It also means DB pension transfers are high-risk decisions. This page does not recommend transferring any pension.

State Pension

The State Pension is separate from workplace and personal pensions. It is paid by the government when you reach State Pension age, and the amount depends mainly on your National Insurance record.

For 2026/27, the full new State Pension is £241.30 a week, but not everyone receives the full amount.

Your State Pension may be lower or higher depending on:

• how many qualifying years you have;
• whether you were contracted out before April 2016;
• whether you built up Additional State Pension under the old system.

The NI years guide explains the 35-year rule, why it is not always enough for people with pre-2016 records, and how to check your forecast.

Tax relief and contribution limits

Pensions are tax-advantaged, but not unlimited.

For defined contribution pensions, contributions usually receive tax relief. In broad terms, this means some of the income tax that would otherwise have been paid is redirected into the pension.

The standard annual allowance is £60,000 in 2026/27. It applies across private pensions and can be lower for high earners or people who have flexibly accessed pension savings.

The allowance test works differently for DB and DC pensions:

• for DC pensions, the test looks at the total contributions paid in by you, your employer and anyone else;
• for DB pensions, the test looks at the increase in the value of promised benefits over the tax year.

See the pension tax guide, annual allowance checker and tapered annual allowance guide if the numbers may be material.

When can you take a pension?

Most private and workplace pensions cannot normally be accessed before age 55. The normal minimum pension age is due to rise to 57 from April 2028 for many people.

The State Pension has a separate State Pension age, which is rising over time. You can check it with the State Pension age calculator.

For many defined contribution pensions, the usual options at retirement are:

• take up to 25% as tax-free cash, subject to allowances and protections;
• leave money invested and use drawdown;
• buy an annuity;
• take some or all of the pot as cash, with tax consequences;
• use a mixture of the above.

The retirement readiness calculator, annuity calculator and pension drawdown calculator help model those choices in broad terms.

What to check on any pension

If you have a pension and are trying to understand it, start with these questions:

For old pensions, start with trace lost pension. For charges, see pension fees and the pension fee calculator.

This is factual information, not financial advice. If you need a personal recommendation about a pension, speak to an FCA-regulated financial adviser.