How UK pensions work

A UK pension plan is a type of retirement plan where an employee adds money into a fund that includes contributions by the employer. The worker's pension payments are determined by the length of the employee's working years and the annual income they earned on the job leading up to retirement.
  • What are your
    UK expat pension options?

    Download our FREE UK pension guide.

Schedule a free (no obligation) 30 minute consultation call at a time that suits you.

Book a FREE Consultation

UK Pension schemes are different. How it will work depends on whether it’s a defined benefit scheme or defined contribution scheme.

Defined benefit pension schemes
Defined benefit pensions pay out a secure income for life which increases each year.
You might have one if you’ve worked for a large employer or in the public sector.
Your employer contributes to the scheme and is responsible for ensuring there’s enough money at the time you retire to pay your pension income.
You can contribute to the scheme too.
They usually continue to pay a pension to your spouse, civil partner or dependants when you die.

Defined contribution pension schemes
Defined contribution pensions build up a pension pot using your contributions and your employer’s contributions (if applicable) plus investment returns and tax relief.
If you’re a member of the scheme through your workplace, then your employer usually deducts your contributions from your salary before it is taxed.
If you’ve set the scheme up for yourself, you arrange the contributions yourself.

Automatic enrolment
Automatic enrolment is a Government initiative that obliges all employers to enrol eligible employees into a workplace pension, provided they are not already in one. Employers also have to pay a minimum contribution into the pension scheme for their eligible workers.

Automatic enrolment started in October 2012 and was phased in over six years. You are eligible for automatic enrolment if you:
Are at least 22 years old;
Have not reached State Pension age;
Earn more than a minimum amount a year (currently £10,000); and
Work, or ordinarily work, in the UK (under a contract).