A pension is a long-term investment. Its value can go down as well as up and could be worth less than was paid in. Laws and tax rules may change in the future. Your own circumstances and where you live in the UK will also have an impact on tax treatment.

Comparing types of pension plans

Your retirement is probably the biggest thing you’ll ever have to save money for. That’s why it’s important to compare your options and choose a type of pension plan that supports your goals and appetite for investment risk. They all have their own benefits, risks and features to think about too.

Our quick and clear guide breaks down a few pension plans to help you better understand each type and to help you decide what’s right for you.

There are two main types of pension plan

Aside from the State Pension, there are two main types of pension plan to choose from, known as Defined Contribution and Defined Benefit (also known as final salary or career average).

In short, Defined Contribution pension plans will pay out based on how much money has been paid into the pot throughout your life, investment growth over time, charges paid and how you choose to take your money at retirement. 

Alternatively, Defined Benefit pension plans will pay out depending on your salary and the number of years you’ve been working for your employer and the terms of the scheme that you're in.

Defined Contribution (DC) pension plans

Sometimes known as ‘money purchase,’ this is a common type of pension plan. You can open a Defined Contribution pension plan on your own – sometimes called a personal pension plan - then start paying into it with the aim of building up a pot for later life. The money you pay in will be invested, which can give it an opportunity to potentially grow. 

You might also get a Defined Contribution pension plan set up automatically through auto-enrolment with your employer – sometimes referred to as a workplace pension plan. 

Here’s a closer look at what you need to know about various types of Defined Contribution pension plan:

Personal DC pension plans

  • You can open a personal pension plan then start saving money into it regularly. You can also top up your plan with extra payments if you want to give it a boost
  • Each time you pay money into your pension plan, it’s topped up by HMRC through tax relief. Find out more about tax relief and rates in our Pension Basics guide
  • The money you save into a personal pension plan is invested in funds, which come with different levels of investments risk
  • Some pension plans give you a choice between managing your own investments or letting experts manage your investments to try and give you the best possible outcome
  • When you reach age 55 (subject to change), you’re normally entitled to take 25% of your whole pension pot as a tax-free lump sum. You don't have to take it at this time and can choose to leave it invested
  • From age 55 you can also start accessing your pension money through a range of different options. We have a guide on ways to take your money  that explains each option
The Standard Life Active Money Personal Pension (AMPP)

The Standard Life Active Money Personal Pension (AMPP)

This Defined Contribution pension plan can help you save and invest money to pay for your retirement. Find out how it works, how to apply and learn your investment options here.

Get a pension

Self Invested Personal Pension

Also known as a SIPP, this type of Defined Contribution pension plan gives you more flexible investment options and can either be opened individually or for you through an employer. For example, the Standard Life SIPP gives you a wide range of investment options from Standard Life and other providers. 

This type of plan is for anyone who wants to manage their own investments and wants a broader range of asset types to invest in. It’s worth keeping in mind that some investment options will only be available through a financial adviser.

Here’s a quick overview of what a SIPP is and how it works:

  • SIPPs are personal pension plans that you can open yourself
  • Each time you pay money into your SIPP, it’s topped up by HMRC through tax relief. Everyone gets basic rate tax relief, but you will get more tax benefits if you are a higher or additional rate taxpayer. Find out more about tax relief and rates in our Pension Basics guide 
  • All the investment options have been approved by HMRC, to help give you peace of mind
  • Once you’ve opened a SIPP, you can make one-off, monthly or yearly payments into your pension plan
  • The money you pay into your SIPP can then be invested in funds from leading fund managers
  • You’re in full control of investing your money, so this pension type could be ideal if you have the time and confidence to manage your own investments
  • Just like a personal pension plan, you can access your money from age 55 (subject to change) and choose a retirement option that’s right for you

Get more details about our SIPP, find out how to apply, browse funds or look at charges and terms here:

Find out more

Stakeholder Pension

This is another type of Defined Contribution pension plan that can be opened yourself or on your behalf by an employer. Stakeholder pension plans are aimed at people who want to save for retirement, but who have less to put away each month. For example, Stakeholder Pensions let you make minimum payments of £16, and you’ll still get tax relief from HMRC to boost your savings.

Here’s a quick overview of how stakeholder pension plans work:

  • You can open a stakeholder pension plan yourself and start saving money into it
  • You can choose to pay more, pay less or stop your pension payments at any time
  • Your savings are topped up thanks to basic rate tax relief. For example, if you paid £16 into your plan, HMRC would usually pay £4 on top
  • The money you save is invested in funds, which come with different levels of investments risk
  • You have the flexibility to choose funds that suit your appetite for investment risk and your goals
  • Stakeholder pension plans typically come with lower charges. See our Stakeholder Pension page for more details
  • Like personal pension plans and SIPPs, you can start taking your pension money from age 55 (subject to change)

You can find out more about features and details of the Standard Life Stakeholder Pension below. You can browse the funds you can invest in, see charges and more.

Find out more

 

 

Workplace DC pension plans

  • Workplace pension plans are opened for you by your employer, who will typically pay into your plan for you. You will usually have to make payments into your plan from your salary and may be able to top up with additional one-off payments
  • There’s a limit on how much you and your employer can pay into all your pension plans, each year. To find out more, please read our handy guide to workplace pensions
  • HMRC will also top up payments made into some types of workplace pension plan, which is known as tax relief. You can find out more how tax benefits work with our Pension Basics guide 
  • The money saved into a workplace pension plan is invested in funds. The total amount in your pension plan depends on how much has been paid in, how long it has been invested for, the performance of the investments, charges deducted, and your tax situation
  • Some workplace pension plans give you a choice between managing your own investments or letting experts manage them to try and give you the best possible outcome
  • When you reach age 55 (subject to change) you typically have the option to take 25% of your whole pension pot as a tax-free lump sum. You don’t have to take it right away and can choose to leave it invested
  • From age 55 you can also start accessing your pension money through a range of different options. We have a guide on ways to take your money that explains each option

Tax relief can work differently with different types of pension plans. With some types of workplace Defined Contribution pension plans, payments are taken from your after tax earnings and you get basic rate tax relief, as described earlier - with other types, payments are deducted from your earnings before income tax is calculated. This means you get your basic tax benefit immediately and higher or additional rate taxpayers don’t need to manually reclaim tax relief from HMRC.

Check with your employer if you’re unsure about which type of workplace pension plan you have.

 

 

What is a Defined Benefit pension?

Commonly known as ‘Final Salary,’ this is a type of workplace pension plan. Defined Benefit pension plans are different from other schemes, as they pay out a specific, secure income for life when you come to take your pension money. 

Here’s a quick overview of how Defined Benefit Pensions work:

Your employer will join you into the company’s Defined Benefit Pension scheme
You make payments into your pension plan through your monthly salary. Some schemes may expect you to make payments as well
Your employer will also pay money into your pension plan, and you’ll get tax benefits from HRMC
Some workplace pension schemes even pay an income to your partner and dependents when you die
The amount you get at retirement is based on a few factors, such as how much you’ve earned through the employment, how long you’ve been employed, your age and more. The specific terms of the scheme will also be a factor

This is just a quick overview of how defined benefit pensions work. For even more information, please visit the Money Advice Service guide to workplace pensions  .

 

 

The State Pension

The State Pension is a retirement income paid every four weeks to you by the government once you reach the UK State Pension age. Not everyone is eligible for the full State Pension, so it’s important to know what your personal position is.

You can get a State Pension statement that can show what your entitlement is likely to be. Visit the Government website  to see how much you could get.

We have a detailed guide to understanding your State Pension. It’s full of helpful information about how much you could get a week, what the State Pension age is and how to qualify for payments when you reach state retirement age.

Read the full guide

 

 

Want to apply?

Interested in getting a Defined Contribution pension plan with us? You can find out a bit more about your options and apply here.

Already with us?

If you already have a Standard Life pension plan, you can see how much is it worth and manage your plan here.

More about pensions

More about pensions

We want to help you get the most out of your pension plan. We have guides, tools, articles and more to help you understand how pensions work and how to keep your savings on track.