Paying into pensions
On this page we look at the different types of pension scheme that you might pay into over the course of your working life.
Content on this page:
Paying into a pension
Pensions are a type of investment plan allowing you to save up for later in life.
Providing your pension scheme provider agrees, there is no limit on the amount you can put into your pension. However, the tax relief you can get may be limited. We explain about these limits on our pages Tax relief on pension contributions and Pension contributions tax relief: limits.
You can save into more than one pension scheme at the same time, for example in two different personal pension schemes; or if you are self-employed and also employed you can save in both a personal pension and workplace pension.
You should remember that once your money has been saved into a pension there are strict rules on how much you can take out and when you can take it. Heavy penalties can apply if you break these rules.
Pensions for employees and ‘workers’
Employers are obliged to have a minimum level pension scheme in place for all ‘workers’ aged 22 and over, who earn more than a certain amount, under the auto-enrolment rules.
‘Worker’ is an employment law term rather than a tax term and goes wider than ‘employee’.
‘Workers’ are generally employees for tax purposes, but sometimes you can be self-employed for tax purposes but still be classed as a ‘worker’ for employment law purposes. You can read more about the different statuses on the page Employed, self employed, both or neither?.
Some information about what is meant by being a ‘worker’ for this purpose can also be found on GOV.UK. The Pensions Regulator have some quite detailed guidance on how to identify ‘workers’ – see their ‘Detailed guidance for employers’.
Therefore, in some circumstances you could be a ‘worker’ for employment law purposes, which includes auto-enrolment, but be self-employed for tax purposes. This will generally apply to dependent self-employed people – for example people in the construction industry and those in the gig economy, however in many cases, engagers may not understand this or forget to check the requirements.
Pensions for the self-employed
As there is no auto-enrolment requirement for self-employed people who are not 'workers’ – so if this is you then you will need to consider how you might save for your retirement. You may well choose to make provision for yourself by saving into a pension – perhaps into a personal or stakeholder pension, as discussed below.
Note: although there is currently no way of self-employed people (who are not ‘workers’) being automatically enrolled into a pension, some of the low-cost pension schemes that are used by employers for their employees are also open to the self-employed. This includes NEST, the government backed scheme.
Main types of pension scheme
- Workplace pensions
Workplace pensions are set up by an employer for the benefit of its employees. You can read more about these on our page Workplace pensions.
- Stakeholder and personal pensions
A personal pension plan is another way of saving regularly for your retirement. You can read more about these on our page Personal pensions.
- Retirement annuity schemes
If you took out a personal pension policy before 1 July 1988, this would have been called a retirement annuity policy. You can read more about these on our page Personal pensions.
- State pension
The government pays the state pension as a regular payment to eligible people who have reached state pension age. You can work out when you will reach state pension age by using the calculator on GOV.UK.
Entitlement for the state pension depends on you having enough ‘qualifying years’ for National Insurance purposes over the course of your working life (or working-aged life). You can read more about this on our page: National insurance and the state pension.
We cannot advise which type of scheme might be best for you, nor whether or not you should pay into a particular pension. Such advice can only be given by a suitably qualified financial adviser.
There is lots of information about pensions and paying into them, on the Moneyhelper website.