Types of pension in the UK and how they work

The State Pension is a payment from the government that's paid every 4 weeks. You can claim it from your State Pension ageOpens in a new window

How much you get depends on your National Insurance record and the number of qualifying years you have built up – usually by working or receiving certain benefits.  

You usually need at least:

• 35 qualifying years to get the full amount of State Pension 

• 10 qualifying years to get anything. 

You can check your State Pension forecastOpens in a new window on GOV.UK to see how much you’re on track to get and if there are ways to boost it. 

For more information, see our guide State Pension: how it works.

A defined contribution (DC) pension lets you build up a pot of money that can provide an income in retirement.  

It’s sometimes called a money purchase scheme and is the most common type of pension in the UK. 

Defined contribution pensions can be: 

• workplace pension schemes set up by your employer 

• personal pension schemes set up by you.  

Your money is invested so it should grow over time, but the value of your pension can rise or fall until you take the money. 

This means the amount you’ll get depends on: 

• how much is paid in, including any contributions from your employer 

• how well the investments perform 

• the charges your provider will take off 

• how and when you choose to take an income – such as taking a guaranteed or flexible income. 

Find out more in our guides: 

• Defined contribution pension schemes explained

• What can I do with my pension pot?

A defined benefit (DB) pension pays a regular and guaranteed retirement income for the rest of your life.

You might have a defined benefit pension if:

• your employer set up your pension before the year 2000, or 

• you’ve ever worked in the public sector – like education, the NHS and the Armed Forces.  

You earn an amount of annual pension for each year you work and are a member of the scheme, called an accrual rate. This is either based on a fraction of:

• the salary you receive each year – for career average schemes

• your last salary before you leave the scheme, or an average from the final years – for final salary schemes.

Many final salary schemes are closed to new entrants and have been replaced by career average schemes. 

Example: If your scheme offers an accrual rate of 1/60th, your salary is divided by 60 to work out the annual pension you’ll get. 

With a salary of £30,000 a year, you’d earn an annual pension worth £500. If you were a member for 10 years and your salary stayed the same the whole time, your pension would pay you £5,000 a year.

The payments are usually monthly and increase in line with inflation each year.

For more information, see our guides: 

• Defined benefit pension schemes: final salary and career average explained

• How to take your pension: a step-by-step guide

A hybrid pension is a combination of defined benefit and defined contribution.

This means your pension usually offers both:

• a guaranteed regular income – based on your salary and how long you’ve been a member

• a pot of money to take a retirement income from – based on how much is paid in and how well the investments perform. 

Some hybrid schemes will pay you the higher of the two options.

You might have a hybrid scheme if your employer:

• replaced their defined benefit pension with a defined contribution scheme and you have pension benefits in both

• offers a defined benefit pension up to a certain salary limit – if your salary is higher than the limit, your extra contributions go into a defined contribution scheme.  

Your provider can explain how your scheme works. 

For more information, see our guides:

• Defined benefit pension schemes: final salary and career average explained

• Defined contribution pension schemes explained 

A cash balance scheme is a type of workplace pension. The amount you’ll get depends on whether your employer promises to:  

• pay you a guaranteed lump sum at retirement, or

• grow your lump sum at a guaranteed rate each year.

Your provider can explain which guaranteed benefits your scheme offers.  

Your employer also takes responsibility for the investment risk, which means you’ll know how much money will be in your pension pot when you decide to access it.

You normally have the same options for taking an income as a defined contribution scheme.

Find out more in our guide What can I do with my pension pot?

A collective defined contribution (CDC) scheme works differently to a standard defined contribution scheme, as: 

• your money is invested along with other members, so the risk is shared and the overall pot might grow at a higher rate than other schemes 

• you’ll always get a regular pension income for life – you cannot choose a different option. 

But, like standard defined contribution schemes, the amount you’ll get depends on: 

• how much is paid in, including contributions from your employer 

• how well the investments perform. 

This means your regular pension income can rise and fall – before and after you start taking it.  

Royal Mail currently has the only authorised collective defined contribution scheme in the UK. 

Find out more in our guide Collective defined contribution pensions explained.   

Additional voluntary contributions (AVCs) are where you pay in more than the minimum required, to boost your retirement savings.

If you have a defined contribution pension, you can usually increase your contributions by contacting your employer or provider.

If you have a defined benefit scheme, you might have the option to:

• buy extra guaranteed pension income, often called Additional or Added Pension 

• pay AVCs into a separate defined contribution pension, to build up a pot of money. 

For more information, see our guide Boost your pension with additional voluntary contributions (AVCs).

You can:

• use our tool to find out your pension type
• ask your pension provider to explain what type you have and if it has any special features, such as a cash balance. 

Most pension schemes in the UK are defined contribution, but you might have a defined benefit pension if:

• you have ever worked in the public sector, like education, the NHS or the Armed Forces, or

• your scheme was set up by your employer before the year 2000. 

Royal Mail currently has the only authorised collective defined contribution scheme in the UK.