A private pension is any pension other than the State Pension: a workplace scheme your employer arranges, or a personal pension you set up yourself. In 2026/27 you get tax relief on contributions up to 100% of your UK earnings (or £3,600 gross if you earn less), within an annual allowance of £60,000. You can usually start drawing from age 55, rising to 57 from 6 April 2028, and take up to 25% tax-free, capped at £268,275 in total.
What counts as a private pension
The government's own guidance divides retirement income into two sources: the State Pension, which depends on your National Insurance record, and money from pension schemes that you or your employer pay into. Everything in the second group is a private pension. It comes in three practical forms:
- Workplace pensions. Arranged by your employer, usually with both of you paying in;
- Personal pensions. Arranged by you directly with a provider, including self-invested personal pensions (SIPPs), which let you choose the specific investments;
- Stakeholder pensions. A type of personal pension that must meet government standards, for example limits on charges.
You can pay into as many schemes as you like. The tax limits apply across all of them together, not scheme by scheme.
Defined contribution and defined benefit
Every private pension is built on one of two models, and the difference decides who carries the investment risk.
- Defined contribution (money purchase). Contributions are invested and build up a pot. What you get depends on how much was paid in, how the investments performed and how you take the money. All personal pensions and SIPPs work this way, and so do most newer workplace schemes;
- Defined benefit (final salary or career average). The scheme promises an income based on its rules, usually your salary and length of service, not on investment returns. These are almost always workplace schemes.
Workplace pensions and auto-enrolment
Under section 3 of the Pensions Act 2008, your employer must automatically enrol you in a workplace pension if you are aged at least 22, under State Pension age and earn more than £10,000 a year from that employer. In most schemes the legal minimum total contribution is 8% of qualifying earnings, of which the employer must pay at least 3% and you pay the remaining 5% (tax relief included). Many employers pay more.
You can opt out, and if you do so within a month of being enrolled you get back what you paid in. Opting out usually means giving up the employer's contribution, which is part of your pay package, so it is rarely a good trade.
Tax relief on the way in
Contributions to a scheme registered with HMRC attract income tax relief at your highest rate. How you receive it depends on the scheme.
- Net pay. Your employer deducts the contribution from your pay before income tax, so full relief is given automatically;
- Relief at source. Used by all personal and stakeholder pensions and some workplace schemes. You pay £80 and the provider claims £20 from HMRC, so £100 goes into the pot. Higher and additional rate taxpayers in England, Wales and Northern Ireland claim a further 20% or 25% through Self Assessment;
- Non-taxpayers. The provider can still claim 20% relief on contributions up to 80% of your earnings, or on up to £2,880 a year if you have no earnings, which grosses up to £3,600.
Total saving from all sources, including employer contributions, is tested against the £60,000 annual allowance. Unused allowance from the previous three tax years can be carried forward. The allowance is tapered for those with threshold income over £200,000 and adjusted income over £260,000, and falls to a £10,000 money purchase annual allowance once you flexibly access a defined contribution pot. Our guide to pension contribution limits covers these in detail.
Taking money out
The normal minimum pension age in section 279 of the Finance Act 2004 is 55, rising to 57 on 6 April 2028. Earlier access is possible only on ill-health grounds or where you have a protected pension age under your scheme's rules. Payments outside the tax rules are unauthorised and can be taxed at up to 55%, which is why offers to "unlock" a pension early are usually scams.
From a defined contribution pot you can usually take up to 25% tax-free, up to the lump sum allowance of £268,275, and then use the rest in one or more of these ways:
- Annuity. A guaranteed income for life, or for a fixed term, bought from an insurer;
- Flexi-access drawdown. The money stays invested and you take adjustable withdrawals;
- Cash. Lump sums taken straight from the pot, either all at once or in smaller amounts.
Anything above the tax-free part is taxed as pension income at your marginal rate, and the provider deducts the tax before paying you. A defined benefit scheme pays a pension set by its rules and will usually let you exchange part of it for a tax-free lump sum.
Worked example
Priya, an employee in England, earns £70,000 and pays £8,000 into a relief at source personal pension. The provider adds £2,000, so £10,000 goes into the pension. About £19,730 of her income is taxed at 40%, which exceeds her £10,000 gross contribution, so she can claim a further 20% (£2,000) through her tax return. The £10,000 costs her £6,000 net.
At 60 her pot is worth £240,000. She can take £60,000 tax-free and move the remaining £180,000 into drawdown. If she then draws £15,000 a year with no other income, £12,570 is covered by her personal allowance and she pays 20% on £2,430: £486 of tax.
Practical points
- Nominate beneficiaries. Ask each provider how to nominate who receives your pot on death, because some payments can only go to dependants;
- Trace old pots. The Pension Tracing Service can help find pensions from former employers;
- Plan for inheritance tax. For deaths on or after 6 April 2027, most unused pension funds and death benefits come into the estate for inheritance tax. See our guide to inheritance tax on pensions;
- Check the provider. Personal pension providers should be FCA-authorised, and the scheme must be registered with HMRC for tax relief to apply.
Sources: GOV.UK, Plan your retirement income, Types of private pensions, Personal pensions, Tax on your private pension contributions and Workplace pensions; Finance Act 2004, section 279; Pensions Act 2008, section 3; and ITEPA 2003, section 637P. See also our guide to pension tax relief.
If you want help with the tax side of pension saving, such as claiming higher rate relief, using carry forward or planning withdrawals, Acumon's private client tax team can help. Employers can use our auto-enrolment services to keep workplace pension duties on track.