"Private pension" is the umbrella term for any pension that isn't the State Pension. This includes every workplace pension you've ever had and any personal pension you've set up yourself (like a SIPP or Stakeholder plan).
The State Pension is the foundation, but it's not enough to live on. For 2024/25, the full new State Pension is just £11,502.40 per year. The entire gap between that and the lifestyle you actually want must be filled by your private pensions.
The problem is, most people don't have one private pension; they have a fragmented collection of old pots from previous jobs. Here, we'll cover the types of private pensions and how an independent financial adviser can help you pull them all together into one unified retirement plan.
What is a private pension?
A private pension is any pension you build up, either through your employer or on your own, to fund your retirement. Unlike the State Pension, which is paid for by National Insurance contributions, a private pension is funded by you and/or your employer.
The two great advantages of private pensions are:
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Tax Relief: When you pay into a private pension, the government adds a top-up. For a basic-rate taxpayer, every £80 you contribute is topped up to £100.
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Employer Contributions: If it's a workplace pension, your employer is legally required to contribute, giving you "free money" on top of your own savings.
The Two Main Types of Private Pension
The term "private pension" covers two distinct categories:
1. Workplace Pensions
These are pensions set up for you by an employer.
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How they work: You are 'auto-enrolled' by your company. You contribute a percentage of your pay, and your employer must also contribute.
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Key Benefit: The employer contribution. This is a core part of your pay package.
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Examples: Your current auto-enrolment scheme, a 'company pension' from an old job.
2. Personal Pensions
These are pensions you set up yourself with a pension provider (like an insurance company or investment platform).
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How they work: You choose the provider and you make all the contributions (which are still topped up by government tax relief).
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Key Benefit: You are in full control. This is the essential option for the self-employed, or for employees who want to save more on top of their workplace scheme.
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Examples: A Self-Invested Personal Pension (SIPP), a Stakeholder Pension, or a standard Personal Pension.
Most people have both a workplace pension from their current job, and a collection of old workplace and personal pensions from their past.
Connect with a private pensions specialist
The Two "Flavours": DC vs. DB
As well as who sets them up, private pensions also come in two different structures:
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Defined Contribution (DC): This is a 'pension pot'. The value is based on how much is paid in and how well the investments grow. Almost all modern private pensions (both workplace and personal) are DC. You bear the investment risk.
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Defined Benefit (DB): This is a 'guaranteed promise'. You are promised a set, inflation-proof income for life based on your salary and how long you worked for the company. These are now rare but are incredibly valuable (e.g., "final salary" schemes).
How our independent advisers can help with your private pension
Because "private pensions" is such a broad term, the role of an adviser is to act as your expert guide, making sense of all your different pots and promises. We don't just look at one pension; we look at your entire retirement picture.
Here are the key services our advisers provide:
1. Holistic Retirement Planning
This is the most important service. We will:
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Gather all your plans: We'll review your current workplace pension, trace your old "lost" workplace pots, and analyse any personal pensions or SIPPs you have.
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Build a single plan: We'll use cashflow modelling to show you what all these different pots add up to. For the first time, you will get a clear answer to "Am I on track to retire when I want to?"
2. A Full Consolidation Review
We will analyse all your different private pension pots and advise you on whether you should consolidate them. This involves:
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Checking for valuable benefits: We'll check every old workplace and personal pension for valuable guarantees, such as Guaranteed Annuity Rates (GARs) or protected tax-free cash, before you move anything.
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Comparing charges and performance: We'll compare the costs and investment funds of your old, scattered pots against a modern, low-cost plan.
3. Choosing the Right Next Pension
Your workplace pension is great, but should you save extra money into it? Or would you be better off starting a separate SIPP for more investment choice? Or should you be using an ISA? We can help you build the most efficient strategy for your new savings.
4. Specialist Advice (DB Pensions)
If one of your private pensions is a Defined Benefit (final salary) scheme, it is a highly valuable asset. We have specialist advisers who can explain what it's worth, how it fits into your plan, and (if you are considering transferring it) provide the legally-required specialist advice.
5. Creating Your Retirement Income
When you're ready to retire, we will design a strategy to turn your various private pensions into a sustainable income. This involves:
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Advising on the most tax-efficient way to take your 25% tax-free cash.
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Creating a "drawdown" strategy from your DC pots.
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Co-ordinating this income with your State Pension and any Defined Benefit pensions.
Get started here to take advantage of a free pension review and a no-obligation chat with an independent financial adviser who specialises in private pensions advice.
FAQs
The State Pension is a government benefit based on your 35-year National Insurance record. A private pension is a savings plan funded by you and/or your employer. You need both.