Understanding the 3 Different Types of UK Pensions

Planning to retire abroad or just curious about your pension options? Understanding the types of UK pensions is key to securing your financial future during retirement.

Each pension type has different rules, eligibility criteria and benefits, which can confuse UK expats navigating retirement planning.

In this guide, we’ll explain each type, compare them side by side, and show how British Pensions can help you maximise your entitlements. Keep reading and see what you can claim.

What Are the Different Types of Pensions in UK?

UK pension schemes fall into three main categories:

State Pension
Workplace Pensions
Personal Pensions (Self-Invested Personal Pensions (SIPPs) and stakeholder pensions)

Each plays a different role in helping you build a secure financial future during retirement, especially if you’re now living abroad.

Let’s dig deeper, starting with the foundation of it all:

1. State Pension

The State Pension is a guaranteed, government-funded pension based on your National Insurance (NI) contributions. It provides a regular income once you reach the State Pension age (currently 66, rising to 67 by 2028).

Only NI contributions count toward your State Pension; not payments into workplace or private pension schemes. While your employer may offer a separate pension fund, those contributions don’t increase your State Pension amount.

One exception is if you were ever “contracted out” of the State Pension in the past. This means lower NI contributions were made in exchange for higher payments into a private or employer scheme.

Eligibility for the State Pension

To qualify for any State Pension, you need a minimum of 10 qualifying years of NI payments or credits.
To get the full new State Pension, you generally need 35 qualifying years.

For example, in 2024/25 the full rate of new State Pension is £221.20 per week (about £11,502 per year). If you have fewer than 35 years, you’ll get a proportionally smaller pension (but still something if you have at least 10 years).

The old Basic State Pension rules apply for those reaching pension age before April 2016, with different rates and qualifying years.

Check out our guide on New Rules 2025 for Eligibility for UK Pension in Australia

Contribution Rules & National Insurance

Your State Pension amount depends on your NI record.

Usually, you earn NI contributions automatically through UK employment or self-employment. Even if you are unemployed or caring for children, you can get NI credits in many cases.

If you miss years of NI (for example, if you lived abroad or were out of work), you can generally back-fill gaps: voluntary Class 3 NI payments are allowed for up to 6 years back (if you’re under State Pension age) to boost your pension.

Benefits of the State Pension

State Pension is security – It’s paid by the government for life, and in the UK, it increases each year by the highest of wage growth, inflation (CPI), or 2.5%.
The State Pension is also tax–efficient – You only pay income tax on it once the combined income (state + other pensions + earnings) exceeds your personal allowance.

2. Workplace Pensions

A workplace pension is a pension scheme set up by your employer. Both you and your employer contribute regularly into this fund, which is invested on your behalf. Unlike the State Pension, a workplace pension depends on contributions you make during your working life.

Workplace pensions come in two main forms:

Defined Contribution Pension

This is the most common type today. You and your employer pay in regularly, and the value of your pension depends on your total contributions and investment performance. In many cases, you can choose or influence how your money is invested, depending on your scheme provider.

Defined Benefit Pension

These are now rare but still exist in some public and older private sector jobs. Instead of relying on investment returns, they provide a guaranteed income for life based on your salary and length of service with the employer.

Eligibility for Workplace Pensions

Since 2012, most UK employees are auto-enrolled into a workplace pension. Your eligible for it if you are:

working in UK
aged 22 up to State Pension age
earning over £10,000/year in the UK

Today, all UK employers are legally required to automatically enroll eligible staff into a workplace pension, this is known as auto-enrolment. Even if you’re an expat, if you’ve worked in the UK, you may have built up benefits in one or more workplace schemes.

You can opt out if you want, but the contribution will be deducted until you do. Even if you aren’t auto-enrolled, you can always join a workplace scheme voluntarily. This rule means millions of workers build pension pots simply by being employed.

Contributions: Employer vs. Employee

By law, the total minimum contribution is 8% of qualifying earnings.

5% from you (4% directly and 1% via tax relief)
3% from your employer

Employers match or exceed the minimum which boosts your savings. You can also choose to pay more (within the annual allowance) to grow the pot faster. All contributions grow tax–efficiently. No income or capital gains tax on the investments inside the pension.

Growth Potential & Benefits of Workplace Pensions

The main benefits of a workplace pension are:

Employer contributions – It’s essentially free money added to your pension pot on top of your salary.
Tax relief on your contributions – You get income tax relief on what you pay in.
Investment growth – Your pension is invested in funds. This gives it the potential to grow significantly over time.
Compound growth – The earlier you start, the more your pension can benefit from compounding over decades.
Tax-free lump sum – At retirement, you can typically take up to 25% of your pot tax-free, with flexible options to draw the rest as income.

3. Personal Pensions

A personal pension is one you set up yourself with a pension provider (insurance company, bank, or online provider). These are called “private pensions” too.

You pay in whatever you like (up to limits), and the provider invests the funds. Personal pensions include standard personal schemes, SIPPs (Self-Invested Personal Pensions) and stakeholder pensions. They are extremely flexible and portable. Ideal for expats or self-employed who may not have a workplace plan.

Self-Invested Personal Pension (SIPP)

A SIPP is a special kind of personal pension giving you direct control over how money is invested. With a SIPP, you can usually choose from stocks & shares, funds, bonds, even commercial property (but not residential property).

You need to be under 75 and ordinarily a UK resident to open a SIPP. But you can continue paying in even if you move abroad (though tax relief rules may change once you leave the UK tax system).

Contributions qualify for tax relief up to 100% of your UK earnings (see Contributions below).

Stakeholder Pension

A stakeholder pension is another type of personal pension, designed by government rules to be low-cost and flexible. By law it must meet standards for value and flexibility.

For example, annual management charges (see below in FAQs) are covered (up to 1.5% of your fund in the first 10 years and 1% thereafter), and you can normally start with as little as £20 per month.

Stakeholder pensions come bundled with workplace schemes, but any individual can set one up. They work like other personal pensions in that your money is invested until you take it at retirement.

Eligibility for Personal Pensions

There’s no age limit to start a personal pension. But you must be at least 67 years of age.

To open a SIPP or stakeholder, just contact a pension provider; they will check your UK residency (for SIPPs) and get you started.

Contribution Rules

You can pay into multiple personal pensions and get tax relief on up to 100% of your UK earnings (capped at the annual allowance, currently £60,000 per year).

For example, a basic-rate taxpayer gets 20% back via tax relief (so £100 invested costs you £80). High earners can claim up to 40% or 45% relief if applicable. If your earnings are very low or zero, you can still contribute up to £3,600 (including tax relief) per year.

Remember: unused relief can also be claimed later if you have an unused allowance.

Benefits of Personal Pensions

Personal pensions (and SIPPs) give the most flexibility.
You choose how much to pay in and when (stop, start or change amounts easily). You also choose how the money is invested.
The fund grows tax-efficiently, and you get at least 25% of the pot as a tax-free lump sum at retirement.

So, What’s the Best Type of Pension for You?

Deciding which pension type is best depends on your situation. For most expats, the State Pension serves as a solid base (if you’ve paid enough NI). It’s a secure government income that you shouldn’t forego. Make sure you have the minimum 10 years qualifying. Meanwhile, if you’re still working, take full advantage of any workplace pension (free employer contributions and compound growth). Self-employed expats or those who left the UK often rely on personal pensions.

Here’s a quick guide:

Current UK workers (at home or abroad):
Stay in your workplace pension (auto‑enrolled if eligible) and top it up with personal pension contributions—especially if you were previously contracted out.
Retirees overseas (Australia, Singapore, etc.):
Lock in your State Pension first (even if it freezes abroad). Then explore transferring private pots—see our [UK Pension to Australia] guide.
High earners & long‑service professionals:
Maximise annual allowances across workplace and personal schemes. A SIPP can give you extra investment control.
Self‑employed or gig workers:
Rely on personal pensions; SIPPs for hands‑on investing or stakeholder plans for low‑cost flexibility.

Still unsure which pension type is right for you?

Reach Out British Pensions to Check Your Eligibility Today

With 30+ years of expat pension experience and over 4,000 successfully advised clients, British Pensions knows how to tailor solutions for every profile.

We’ll help you secure your financial future during retirement by reviewing your NI record, spotting any missed entitlements, and guiding you on transfers or contributions.

Our experts are ready to review your situation and clarify your entitlements. Don’t leave money on the table.

Book your eligibility checks today

Claim Your UK Pension Now

FAQs

How much State Pension can I get as an expat?

It depends on your NI record. The maximum (full new State Pension) is £221.20 per week (about £11,502 per year (2024/25 rate). If you have fewer qualifying years, you’ll get less (down to zero if under 10 years).

What is the annual management charge on a pension?

The annual management charge (AMC) is the fee your pension provider takes each year to cover running and investment costs. It’s usually a percentage of your total pot; between 0.5% and 1.5%. Though some schemes may charge a flat fee. More specialised or actively managed funds carry higher AMCs.

Can I transfer my UK pension to Australia?

Yes; state, private and workplace pensions (defined-contribution schemes) can generally be transferred to an Australian superannuation fund via a QROPS, subject to conditions (you must be at least 55, have professional advice, and meet HMRC rules). Check out this guide to transfer your UK pension to Australia.

What if I have gaps in my National Insurance record?

Gaps mean missing qualifying years, which can reduce your State Pension. You can check your NI record online. If you have gaps, you can generally pay voluntary Class 3 contributions to fill up to 6 past years (usually those in the last 6 years). Paying extra NI can top up your pension, especially if you’re close to the minimum years needed.

Can I get back pay on missed contributions?

If you’ve already missed paying NI for older years, you usually cannot ‘backdate’ beyond the 6-year window (unless you have very exceptional reasons). It’s best to proactively fill gaps as early as possible. For advice, see our blog on Maximising Your British State Pension or contact us.