Types of pension
Saving for retirement: the State Pension and pensions from work.
A pension is money you build up during your working life so you have an income when you stop working. There are three kinds: the State Pension from the government, a workplace pension you and your employer pay into, and a private pension you set up yourself. The State Pension is a foundation; most people add to it.
Why pensions exist
A pension is a way of paying yourself an income in later life, once you are no longer earning from work. You build it up over decades, a bit at a time, so that the money is there when you need it.
There are three main types: the State Pension from the government, a workplace pension arranged through your job, and a private pension you set up for yourself. The State Pension provides a foundation, and many people build up a workplace or private pension alongside it for additional income in retirement.
Workplace pensions and automatic enrolment
Most employees now build up a workplace pension without having to arrange anything. Under automatic enrolment, eligible workers are signed up by default, and they can choose to opt out. Broadly, eligible workers are aged 22 up to State Pension age and earn more than £10,000 a year.
In an automatic-enrolment workplace pension, the employee and the employer normally both contribute, so your pot grows with help from your employer as well as from your own pay. That employer contribution is a big reason opting out is usually a poor idea.
The State Pension and private pensions
The State Pension is a regular payment from the government once you reach State Pension age. You build up your entitlement through the National Insurance you pay over your working life. There is a State Pension age, and it can change over time.
A private pension is one a person arranges themselves. It is especially useful for the self-employed, who have no employer to enrol them, and for anyone who wants to save more on top of a workplace scheme.
The State Pension
Illustrative, 2026/27.
- The full new State Pension is £241.30 a week, roughly £12,500 a year.
- You usually need 35 qualifying National Insurance years for the full amount, if your record started after April 2016, and at least 10 years to get anything.
- It is designed as a foundation, so most people add a workplace or private pension on top.
- 'The State Pension will be enough to live on.' It provides a foundation, but most people add a workplace or private pension to have more to live on in retirement.
- 'Automatic enrolment signs up absolutely everyone.' It signs up eligible workers, broadly those aged 22 to State Pension age earning over £10,000, and they can opt out.
- 'Only the employee pays into a workplace pension.' In an automatic-enrolment scheme the employer normally contributes too, which is free money towards your future.
Key terms
- State Pension
- A regular payment from the government once you reach State Pension age.
- Workplace pension
- A pension you and your employer both pay into.
- Private pension
- A pension you set up yourself, on top of or instead of a workplace scheme.
- Automatic enrolment
- Eligible employees are signed up to a workplace pension by default, and can opt out.
- State Pension age
- The age at which you can start claiming the State Pension.
Not examined
Check your understanding
- What does it mean to be automatically enrolled into a workplace pension?
- What is a private pension, and who is it especially useful for?
- Roughly how many qualifying National Insurance years does someone starting out today normally need for the full new State Pension?
Show suggested answers
- Eligible employees are signed up by default; both they and their employer normally contribute, and they can choose to opt out.
- A pension you arrange yourself; it is especially useful for the self-employed, who have no employer to enrol them, or anyone saving on top of a workplace scheme.
- 35 qualifying years, for a record starting after April 2016, and at least 10 to receive anything.