Private pensions
A private pension - also known as a personal pension – is a type of defined contribution pension designed to help you save for retirement. Unlike a workplace pension set up by your employer, a private pension is set up by you, offering flexibility regardless of your employment status. You can choose your own provider and make contributions that suit your financial circumstances.
Private pensions are separate from the State Pension and any workplace pensions you might have. They’re based on how much money you pay in and how well your investments perform over time. Contributions are typically invested in a combination of assets like company shares (also known as equities), bonds, property and cash.
How private pensions work
Private pensions work similarly to workplace pensions, but they’re not tied to your employer. There are two main types:
- Standard private pensions - where your provider chooses the investment funds.
- Self-Invested Personal Pensions (SIPPs) - where you choose your own investments.
You can set up regular contributions (e.g. monthly) or make one-off payments. Your pension provider will usually claim basic rate tax relief on your behalf, which boosts the value of your contributions.
If you’re employed, your employer may still be able to contribute. If you’re self-employed or don’t have access to a workplace scheme, private pensions can be a crucial tool for building up your retirement savings.
Tax relief on private pensions
One of the key benefits of saving into a pension for most UK taxpayers is the tax relief. Usually basic rate taxpayers get a 25% tax top up. For every £100 you contribute, HMRC adds £25, bringing your total contribution to £125 if you’re a basic rate taxpayer.
If you’re a higher or additional rate taxpayer, you can claim a further 25% or 31% respectively through your Self-Assessment tax return.
You can get tax relief on private pension contributions up to 100% of your salary or £60,000, whichever is lower (2025/26).
Withdrawing from a private pension
You can start taking money from your private pension at age 55, although this will rise to 57 by 2028. There are a few different ways to access your savings:
- take a 25% tax-free lump sum, with the rest taxed at your marginal Income Tax rate;
- use your pot to buy an annuity, which provides a guaranteed income; or
- keep your pension invested and make flexible withdrawals via drawdown.
Your pension savings may also be passed on to beneficiaries after death, although the rules and tax treatment can be complex. Find out more about pension death benefits.
Who should consider a private pension?
Both private and workplace pensions can be good ways of saving for retirement. They can be really important for bolstering any income you may receive from the State Pension, which is currently just £11,973 a year (2025/26).
You can open a private pension even if you’ve got a workplace pension. Employers are required to contribute to their employees’ pension plans under Auto-Enrolment, which can make workplace pensions particularly attractive. If you earn between £6,240 and £50,270 (2025/26), your employer must pay at least 3% of your earnings into your pension.
If you don’t have a workplace pension - perhaps because you’ve opted out of your company pension scheme or you’re self-employed - then starting a private pension is one way of kickstarting your retirement savings. Don’t favour one type of pension over the other, however, and try to save into both workplace and private options.
What is the best private pension?
The best private pension for your needs will depend on your personal circumstances. Your choice of provider and plan could depend on:
- your age;
- your attitude to risk;
- your investment preferences; and
- whether you want to manage it yourself (via a SIPP) or let the provider handle it.
If you’re unsure where to begin, it’s a good idea to compare providers and check fees, plan options, and customer reviews.
Starting a private pension
Setting up a private pension is relatively straightforward, and you can have more than one. PensionBee offers private pensions where you can combine all your old pensions into one plan and manage everything easily online. Your employer and even family members can also contribute if they wish. If you work for yourself or are starting from scratch, you can open a self-employed pension. With PensionBee’s self-employed option, you can make flexible contributions according to your income.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
Last edited: 29/07/2025
