What are the different types of pension?

Let’s walk through what pensions are, who they’re for, and the main types available in the UK. We’ll also look at the benefits and drawbacks of each, so you feel informed and prepared.

A pension is a long-term savings plan designed to give you an income when you retire. You contribute money during your working life, and that money is either invested or held by the government or your employer. When you reach retirement age, you can access those funds—either as a regular income or a lump sum.

Think of a pension as a financial safety net. It’s there to support you when you’re no longer earning a salary, helping you maintain your lifestyle and meet your needs.

Pensions are for everyone. Whether you’re employed, self-employed, or not currently working, there’s a pension option that can help you prepare for retirement.

Here’s how pensions support different people:

• Employees: Most employers offer a workplace pension. If you’re eligible, you’ll be automatically enrolled—and your employer will contribute too.
• Self-employed people: You can set up a personal pension to save for retirement on your own terms.
• People not in work: You may still qualify for the State Pension, depending on your National Insurance contributions.

No matter your situation, a pension helps you take control of your financial future.

There are three key types of pension in the UK. Each works a little differently, but they all aim to help you save for retirement.

The State Pension is provided by the UK government. If you’ve paid enough National Insurance contributions, you’ll receive a regular income once you reach State Pension age.

As of 2025, the full new State Pension is around £221.20 per week. The exact amount depends on your contribution history.

Benefits:

• Guaranteed income for life.
• Protected against inflation.
• No investment risk.

Drawbacks:

• The amount may not be enough to cover all your expenses.
• You must meet contribution requirements.
• You can’t access it early.

The State Pension is a solid foundation, but most people will need additional savings to live comfortably in retirement.

A workplace pension is set up by your employer. Thanks to auto-enrolment, most employees are automatically added to a scheme if they’re over 22 and earn more than £10,000 a year.

There are two main types:

• Defined Contribution (DC): You and your employer contribute to a pension pot, which is invested. The amount you get depends on how well those investments perform.
• Defined Benefit (DB): Also known as final salary pensions, these provide a guaranteed income based on your salary and how long you’ve worked for your employer.

Benefits:

• Employer contributions boost your savings.
• You get tax relief on your contributions.
• It’s easy to join and manage.

Drawbacks:

• DC pensions carry investment risk.
• DB pensions are less common today.
• Some schemes may have limited flexibility.

Workplace pensions are a great way to build up retirement savings, especially with your employer contributing too.

A personal pension is one you set up yourself. It’s ideal if you’re self-employed or want to top up your other pension savings.

You choose how much to contribute and where to invest. Providers offer a range of options, from low-risk funds to more adventurous portfolios.

Benefits:

• You’re in control of your contributions and investments.
• You receive tax relief.
• It’s flexible and tailored to your needs.

Drawbacks:

• Investment performance can vary.
• Fees and charges may apply.
• You may need financial advice to make the most of it.
• You may need to complete a tax return if you are a higher rate or additional rate taxpayer in order to obtain the correct tax relief.

Personal pensions offer freedom and flexibility, but they also require careful planning.

Choosing the right pension depends on your circumstances. Many people benefit from a mix—relying on the State Pension as a base, building up a workplace pension, and adding a personal pension if needed.

Here are a few things to consider:

• Start early: The sooner you begin saving, the more time your money has to potentially grow.
• Review regularly: Check your pension statements and adjust your contributions if needed.
• Get advice: A financial adviser can help you make the most of your pension options.

Pensions are about more than money, they’re about peace of mind. They help you feel confident about your future, knowing you’ll have support when you need it most.

Whether you’re just starting out or thinking ahead to retirement, understanding your pension options is a powerful step. By choosing the right mix and staying informed, you can build a future that aims to be secure, comfortable, and tailored to your needs.

We’re here to help you make sense of it all. If you’d like to explore your pension options or have questions about what’s right for you, reach out to us for a no-obligation initial consultation.

This article is for information only and is not a personal recommendation. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser. 

Fees and charges apply at Schroders Personal Wealth.

Pensions are a long-term investment. The retirement benefits you receive from your pension plan depend on a number of factors including the value of your plan when you decide to take your benefits, which isn’t guaranteed, and can go down as well as up. The benefits of your plan could fall below the amount(s) paid in.

Always seek a professional opinion as tax rules can be complex, depend on individual circumstances and are subject to change.

Any views expressed are our in-house views as at the time of publishing.

This content may not be used, copied, quoted, circulated or otherwise disclosed (in whole or in part) without our prior written consent.