The difference between Personal & State UK Pensions

Types of Pension Plans


One of the much-admired benefits of living in a welfare state like Britain is the state pension. The pension is designed to give everyone enough money to cover the cost of a basic lifestyle in retirement.

For anyone wanting more to spend when they give up work, a personal or workplace pension is a necessity to top up the income paid by the government. Anyone can have a state and a personal pension running side by side. Comparing both is quite straightforward:

How the state pension works

The state pension is paid by the government to men born after April 6, 1951 and women born after April 6, 1953 reaching state pension age after April 6, 2016.

The current state pension age is 67.

The flat rate payment is £155.65 a week – but the amount paid depends on everyone’s national insurance contribution record. The pension is typically paid to anyone with a minimum of 10 qualifying years of full national insurance payments or credits, such as years spent bringing up a family or caring for a sick relative.

Expats can qualify if they have paid social security in the EU or some other countries. To get the full amount, someone must have 35 qualifying years of national insurance payments. Anyone with fewer years is paid pro rata – from 10/35 to 34/35 of the full payment.

Each year, the state pension rises in line with the government’s triple lock promise – by a minimum of 2.5%, the CPI annual rate of inflation in September or the percentage increase in the national average wage.

How personal pensions work

Personal pensions can be started by an individual or taken out as part of a scheme offered by an employer. The retirement saver contributes an amount each month which is topped up by tax relief and generally an employer’s contribution for a workplace scheme.

A personal pension is likely to be a direct contribution pension, which offers an income in retirement based on the performance of investments in the scheme. Some older workplace schemes are defined benefit pensions which provide a guaranteed income on retirement based on the worker’s final salary and length of service.

Other personal pensions can include SIPPs or SASS, which typically have a DIY option for managing investments.