A quick overview of pensions
A pension is a long-term, tax-efficient savings plan designed to provide you with a reliable income once you stop working. It serves as a financial foundation to support your lifestyle throughout retirement.
You can read more about how they work in our various guides to the different types of pension available in the UK, such as personal and workplace pensions.
Key features of pensions
Here is a rundown of the key components of pensions and the rules around them:
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Can be set up as a workplace, personal, or state-funded scheme
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Contributions usually benefit from government tax relief at your marginal rate
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Funds are typically locked away until you reach age 55, rising to 57 in 2028
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Can be managed as defined contribution (pot-based) or defined benefit (salary-linked)
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Upon retirement, you can usually take up to 25% of your pot as a tax-free lump sum
Eligibility criteria and other requirements
To qualify for a pension in the UK, you generally need to be a resident with a UK bank account. For workplace auto-enrolment, you must be aged between 22 and State Pension age and earn over £10,000 per year. Personal pensions, such as SIPPs, can be opened at almost any age, though there are annual limits on how much tax-relieved credit you can contribute.
This table highlights the factors that impact a pension’s growth and your eventual retirement income.
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Factor |
Impact & Key Provider Checks |
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Fees & Charges |
Providers check annual management charges. High fees can significantly erode your total pot over time |
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Investment Choice |
The range of funds (equities, bonds, etc.) impacts risk. Higher-risk assets typically offer more long-term growth |
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Employer Matching |
In workplace schemes, employers must contribute a minimum percentage, effectively boosting your savings instantly |
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Tax Relief |
Your income tax bracket determines your relief. High-earners may need to claim additional relief via a tax return |
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Transfer Value |
For defined benefit schemes, a "Cash Equivalent Transfer Value" (CETV) is calculated before you can move funds |
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Inflation |
The "real" value of your pot is checked against rising costs to ensure your future purchasing power is maintained |
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FAQs
Yes, this is known as pension consolidation. It can make your savings easier to manage and may reduce your total annual fees. However, you must check if your old pensions have safeguarded benefits (such as guaranteed annuity rates or loyalty bonuses) that you might lose by transferring. It is often recommended to seek professional advice before moving significant sums.
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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
IF YOU ARE THINKING OF CONSOLIDATING EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY.
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