What is a pension? Pensions explained simply

The three main kinds

Workplace pension: set up by your employer. If you're 22 or over and earn more than £10,000 a year, they must enrol you automatically. Workplace pensions explained
Personal pension: one you set up yourself, such as a SIPP (self-invested personal pension). It's useful if you're self-employed.
State Pension: paid by the government from State Pension age. How much you get depends on your National Insurance record. You usually need 35 qualifying years for the full new State Pension, and at least 10 to get any.

Who puts money in

In a workplace pension, at least 8% of your qualifying earnings (your pay between £6,240 and £50,270 a year) goes in, and at least 3% must come from your employer. The government adds tax relief on your part. Here's the minimum on a £30,000 salary:

From your take-home pay£950.40
Tax relief from the government£237.60
From your employer£712.80

Total going in: £1,900.80 a year, or about £158 a month.

Minimum yearly contributions on a £30,000 salary in 2026/27, in a scheme where tax relief is added to your pension.

So for every £950 you pay, about £1,900 goes into your pension. That's why opting out means losing your employer's contribution, which is effectively part of your pay.

How tax relief works

Money you pay into a pension gets tax relief. In many workplace schemes, if you pay £80 from your take-home pay, the government adds £20, so £100 goes in. In other schemes, your contribution is taken before tax, which has the same effect.

When you can take it

You can usually take money from a personal or workplace pension from age 55, rising to 57 from 6 April 2028. You can normally take up to a quarter tax-free, and the rest is taxed like income. The State Pension starts later, at State Pension age.

Why starting early helps

Money paid in during your twenties can have 30 years or more to grow. Because growth builds on growth, early contributions often end up being worth far more than later ones.

Check you've got it

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Go further

Ready for the practical side? Read Workplace pensions explained.

Sources

We checked this page against these sources on 9 October 2026. Rules and allowances can change, so always check the latest position on GOV.UK.

This page is general information, not personal financial advice. Read our full disclaimer.