Pensions Guide · 2025/26
UK Pension Types: Complete 2025/26 Guide
Pensions are the most tax-efficient way to save for retirement in the UK. This guide covers the three main types — State Pension, Workplace Pension, and SIPP — plus the allowances, tax relief and recent rule changes you need to know about.
1. The State Pension
The State Pension is a regular payment from the government based on your National Insurance record. In 2025/26, the full new State Pension is £230.25 per week(£11,973 a year) — up 4.1% under the “triple lock”.
You need 35 qualifying years of NI contributions for the full amount, and at least 10 years to qualify for anything. State Pension age is currently 66, rising to 67 between 2026 and 2028.
Check your State Pension forecast at gov.uk/check-state-pension.
2. Workplace Pensions
Since 2012, employers have been required to auto-enrol eligible employees into a workplace pension. The minimum contributions are 5% employee + 3% employer = 8% of qualifying earnings (£6,240–£50,270). Many employers contribute more.
Defined Contribution (DC)
By far the most common type today. Your and your employer\'s contributions are invested. At retirement you can:
- Take 25% tax-free as a lump sum (up to £268,275 LSA)
- Buy an annuity for guaranteed income
- Use flexi-access drawdown
- Take cash lump sums (UFPLS)
Defined Benefit (DB) / Final Salary
Pays a guaranteed income for life based on years of service and salary. Mostly closed to new members in the private sector (BT, BBC), but common in public sector (NHS, Civil Service, Teachers, Local Government). Very valuable — equivalent transfer values are often £25–£30 per £1 of annual income.
3. SIPP (Self-Invested Personal Pension)
A SIPP is a personal pension you control — you choose where to invest. Suitable for the self-employed, high earners maxing out workplace contributions, or anyone wanting more investment control.
Top SIPP providers (2025): Hargreaves Lansdown, Vanguard, AJ Bell, InvestEngine, Interactive Investor. Platform fees from 0.15% to 0.45%.
You get the same tax relief as a workplace pension — basic rate is added automatically (so £80 becomes £100), higher rate claimed via Self Assessment.
Tax Relief — The Killer Feature
UK pensions offer the best tax relief of any savings vehicle:
- Basic rate (20%) taxpayers: for every £80 you pay in, HMRC adds £20 = £100 in your pension
- Higher rate (40%): £100 in your pension costs you just £60 (claim extra 20% via SA)
- Additional rate (45%): £100 in pension costs £55
For higher-rate taxpayers, putting £1 in a pension is often worth £1.67 vs putting it in an ISA (after taking the 25% tax-free lump sum and paying basic rate on the rest).
Annual Allowance & Carry Forward
The Annual Allowance is £60,000 for 2025/26 — the most you can contribute to all pensions in one tax year and receive tax relief. Capped at 100% of your earnings.
Tapered Annual Allowance: reduces by £1 for every £2 of adjusted income above £260,000, to a minimum of £10,000 (at £360,000+ income).
Carry forward: you can use unused allowance from the previous 3 tax years — useful for one-off large contributions (year-end bonus, business sale, etc.).
LSA & LSDBA (post-Lifetime Allowance)
The £1,073,100 Lifetime Allowance was abolished in April 2024. It\'s been replaced by:
- Lump Sum Allowance (LSA): £268,275 — max tax-free cash you can take across all pensions
- Lump Sum and Death Benefit Allowance (LSDBA): £1,073,100 — max tax-free death benefits