Understanding and building your pension
Retirement may feel like a long way off. But planning for it early and setting up a pension is one of the most valuable things you can do for your future.
We’ll help you understand the basics of how pensions work and the different types, so you can be in a much stronger position when it’s time to retire.
What is a pension?
A pension is usually a pot of money you build up over time. It’s a tax-efficient way to save for your retirement – so you have some money to live off when you’re older and no longer earn as much from work.
In most cases, you can’t get the money until you’ve reached a certain age.
There are a few different types of pensions:
- the State Pension (from the government)
- workplace pensions (which your employer and you pay into)
- private pensions (which you set up and pay into yourself)
For most people, the State Pension alone won’t cover all their living costs in retirement. That’s where workplace and private pensions come in.
How you build your State Pension
The State Pension is a regular payment from the government, which you can start claiming when you reach State Pension age.
How much you’ll be paid, if any, depends on your National Insurance record. This is because National Insurance isn’t like other taxes. You pay it in something called ‘contributions’.
Your contributions are logged over the years on your personal National Insurance record. If you have enough qualifying years on your National Insurance record, you should receive some State Pension when the time comes. You can learn more on our National Insurance page.
Key thing to remember:
You’ll normally need 10 qualifying years on your National Insurance record to receive some of the State Pension. If you have an online account, you can check your record any time on GOV.UK or on the HMRC app. If you don’t have either of these, you can ask for a statement of your National Insurance record on GOV.UK.
You can find more detail on our page about how the State Pension works.
When do you start getting paid?
Between April 2026 and March 2028, the State Pension age is rising from 66 to 67.
The exact date you can claim the State Pension is based on your date of birth and is part of a phased approach. You can easily check your State Pension age using our free calculator on GOV.UK – or on the HMRC app.
Helpful tip:
You can check how much State Pension you’re on track to receive at any time using the Check your State Pension forecast tool on GOV.UK.
Some people plan to stop working before they reach State Pension age. If that’s your goal, then it’s definitely worth thinking about how you’d cover your living costs in the meantime.
Key thing to remember:
The State Pension counts as taxable income. When you retire, you may have to pay Income Tax on it, depending on your total income and whether it goes above your tax-free Personal Allowance. You can find more detail about how tax works when you get a pension on GOV.UK.
Workplace and private pensions
If you’re employed, your employer should have set up your salary so you’re automatically paying into your workplace pension – they’ll be paying into it too. This is called ‘automatic enrolment’.
There are three main types of workplace pension:
- Defined Contribution schemes
- Defined Benefit schemes
- Collective Defined Contribution schemes
You can find out more about these on our Approaching Retirement page.
Key thing to remember:
You don’t pay any Income Tax on your workplace pension contributions.
You can opt out of automatic enrolment, but you’ll lose this tax relief benefit – and your employer may stop making contributions too.
If you’re self-employed, you can set up a private pension and also get similar tax relief.
You’ll usually only need to pay tax on your pension when you start taking the money out, when you retire.
Helpful tip:
Most private pensions have a minimum age you need to be to start taking your pension. It’s worth checking with your pension provider to see when you can access yours.
Planning ahead makes a big difference
When it comes to your retirement income, thinking ahead can give you more choice when the time comes.
The information you’ll find here at Tax Confident will help you understand where you stand now, so you can take any action you need to in advance – whether that’s paying more into your workplace pension, setting up a private pension, or filling any gaps in your National Insurance record.
We know it can be hard to get your head around at first, but there’s always help available. You can find more detail on planning your retirement income and other support available on GOV.UK.