The best personal pensions (UK)

A personal pension is a pension set up by you, rather than the government (called the State Pension), or your employer (called a workplace pension).

It’s a pension that's all in your name, and it’s all your money. You decide who your pension is with and how much you put in.

It works similar to a pension you might have from your workplace, and technically a personal pension and a workplace pension are both types of private pensions. They’re all yours – and if you pass away, they’ll be passed onto your family (or next of kin).

Whereas the State Pension is a public pension, as it’s provided by the government (a public service), and if you pass away, it probably won’t be passed onto your family.

And with a personal pension, unlike a workplace pension, where your employer decides everything, you get full control over where and how your pension is managed. Don’t worry, it’s simple and you can let the experts handle everything, you just get the choice of which pension company you use, called a pension provider.

As you decide the provider, that means you can shop around for the best rates (lowest fees), and best investment performance (looking at previous performance). Or, you might like a provider with a great phone app, or expert advisors there if you need them. The choice is yours!

And if you’re more experienced, you can open a self-invested personal pension (SIPP), where you can make the investment decisions for yourself too, and buy and sell investments. Here’s the best SIPPs.

Best of all, with all pension pots, you’ll get a bonus from the government, which starts at 25% of what you put in. More on this below!

With a pension pot, you’ll get a bonus from the government – a massive 25% top-up on what you put in.

This top-up is intended to reimburse the amount of tax (basic rate tax) you’ve already paid – as paying into your pension is intended to be tax free.

Why tax free? Well, the government want people to save as much as they can for their retirement, as the state pension is probably not going to be enough for people to live on just by itself any more.

If you’re a higher rate tax payer (meaning you earn more than £50,270), you’ll actually get 40% back (but only on the amount you pay 40% tax on), and the same if you’re an additional rate taxpayer, getting 45% back. Winning!

With the 25% bonus, your pension provider (the company who is looking after your pension), will automatically claim this bonus from the government and add it on to your balance.

With higher rate (40%) and additional rate (45%) taxpayers, you’ll claim this each year as part of your Self Assessment tax return – which is an online form you can fill out after each tax year (which ends of April 5th every year), telling the government you’ve been paying into a personal pension and would like to claim your tax back (your pension bonus).

This is different to a workplace pension scheme (the pension set up by your employer). With a workplace pension, first, your money goes into your pension before you pay tax, then the tax is deducted from what is left over. So, you haven’t actually paid any tax on the money you’re paying into your pension. It’s all handled by your employer.

However, with a personal pension, you’re using money that you’ve already paid tax on (e.g. your salary after you’ve paid tax), and so you get the amount you’d paid in tax, back as a bonus.

It sounds confusing but it’s really quite simple, you just get your tax back on the amount you pay in!

With the money within your pension pot – it’s effectively tax-free when it’s growing, meaning you won’t pay Capital Gains Tax, which is a tax you sometimes pay when your money has increased from assets growing in value – such as if you buy an investment and then sell it later and make a profit. This is great news as your money will grow much faster!

You will pay tax when you start withdrawing your money from your pension pot however. The first 25% is tax-free, and you can take this as a tax-free lump sum in one go when you reach 55 (57 in 2028), or if you take little bits here and there, you won’t pay tax on 25% of what you take out.

With the remaining 75% of your pension, you’ll pay income tax on it. So, that means if your yearly earnings are above the current tax personal allowance of £12,570 per year, you’ll pay 20% tax, and if your earnings are over £50,270 per year, you’ll pay 40% tax on the money above that.

So effectively it’s just the same as a job, but ideally you would have retired! And your pension could be the only income you have which could mean you’re not paying any tax at all later in life.

You can actually pay as much as you like into your private pension, however, there are limits on how much tax relief you can claim on your workplace pension and limits on the tax benefits on a personal one (i.e. the juicy 25% bonus from the government).

There's an annual allowance, and a pension lifetime allowance. More on those limits below.

If you’re lucky enough to have lots of cash burning a hole in your pocket, you might want to pay as much as possible into your pension to benefit from the government bonus. But, there are limits on the amount you can pay into your pension and still claim the bonus (tax back). Which are:

• 100% of your income per year, or
• A maximum of £40,000 paid in per year
• £1,073,100 paid into your pension over the course of your lifetime (called the pension lifetime allowance).

These limits could change over time, and all the latest limits can be found on the gov.uk website.

A workplace pension scheme is also a private pension, but it’s one your employer sets up and manages for you (if you are employed). If you’re self-employed, you’ll have to set up your own personal pension.

Anyway, with workplace pensions, your employer will almost definitely be part of the auto-enrolment scheme, which is where they have to set you up with a pension unless you opt out (it’s a government scheme).

And, this is where it gets good, they have to contribute to your pension too! 

The standard contributions are, if you add 5% of your salary into your pension, your employer has to add at least 3% (by law), and sometimes they might add even more if you add more (called matched contributions). It’s basically free money!

Plus, everything you put into your pension is before you pay tax (called tax relief), so you’ll save on Income Tax and National Insurance contributions too. This type of payment into your pension is called salary sacrifice.

The State Pension (technically called the new State Pension), is what you’ll get from the government when you reach State Pension age, which is 66, but slowly increasing to 68.

However, to qualify, you’ll need to have made National Insurance contributions for at least 10 years, and to get the full amount, you’ll need to have made 35 years worth of contributions. These are recorded on your National Insurance record.

It’s currently £185.15 per week – so not a huge amount. That’s why we recommend making use of a workplace pension scheme if you have one, and a personal pension too – to increase your retirement savings as much as possible.

Both of these will boost your retirement income quite significantly when it comes to retirement, especially if you start your pension early!

A self-invested personal pension (SIPP) is a pension you can easily set up yourself, and it gives you the ability to invest your money however you like. 

So you could buy shares of a specific company, such as Google or Amazon, or you could invest in specific investment funds (groups of investments packaged together) that you like. 

You’ll still get the government bonus too – a 25% top-up of whatever you pay into your account (and 40% if you’ve paid higher rate tax on some of your income).

We recommend SIPPs for more experienced investors as you’ll need a solid investment strategy to outperform the experts at other pension providers. But if you think it’s for you, check out our recommended SIPPs and our best investment platforms UK.

However, if you’re new to pensions and investing, start with a personal pension managed by the experts, such as PensionBee¹. You can always start an SIPP later!

A ready-made personal pension is one where your investment decisions are all handled for you. All you need to do is add your money – either as a one-off payment a regular monthly payment (recommended).

They're often set up by online stock brokers or investment platforms, who offer SIPPs – and their experts have designed a portfolio (a range of investments) that is perfect for anyone to get going with their pension. You simply pick the ready-made portfolio, and you're all set.

They're very similar to expert-managed managed personal pensions. However often expert-managed pensions solely offer pensions, so it's a bit easier to get up and running – you don't need to register with the stock broker or the investment platform first and then make your investment decisions. You simply register with the expert-managed pension provider and that's it! They'll take care of everything else.

If you’re self-employed, you’ve got lots of benefits – like being your own boss, and choosing your own hours! But when it comes to pensions, you don’t have an employer to set up a pension pot for you (actually the only good bit about an employer setting up your pension is that they have to add at least 3% into it themselves by law).

In general, personal pensions are far better than workplace pensions. You get to decide which pension provider you want to use, so you can shop around for the best rates (lowest fees), and best investment performance (in previous years) from the best pension companies – and a provider with a phone app, or expert advisors ready to answer your questions. The choice is yours!

The only downside is you don’t get the contributions from your employer as you do with workplace pensions. But you’ll still get the government bonus, starting at 25% of what you put into your pension (for basic rate tax payers).

So, to set up your pension, you’ll have to choose a personal pension provider and set it up yourself (it’s easy, really!).

Your best option is to go with a personal pension managed by the experts. The experts will handle everything for you, just like a pension you’d have if you were employed.

All you need to do is add cash, and you’ve got the flexibility to make contributions whenever and for however much you’d like to.

Our recommended options are in the private pension comparison table above. And our top pick for those self-employed is PensionBee¹ – they’re 5 star rated, super easy to use, have low fees and have a great track record of investment performance.

Pensions might seem complicated, but they’re actually really simple these days.

The hardest part is finding the right pension company for you, but luckily we’re here to help and have done the hard work for you and researched and reviewed the best – all in the private pensions table above.

Once you’ve found one you like and signed up, it’s all over to them. They’ll handle everything for you, that’s transferring existing pensions over if you have them, to setting up any regular payments you’d like to make.

You’ll normally have to choose how you’d like your money invested, for instance if you’d only like ethical investments (so no oil or gas companies for instance), but they’ll help you with this too.

They’ll even collect the government bonus for you – that’s the 25% you get free on everything you put into your pension pot.

So really, all you need to do is put your feet up, add to it regularly if you can, and watch your pension grow over time.

With a private pension, as it’s all your cash (and not the government's cash like the State Pension), it will pass to your next of kin or someone you specify with your pension provider. It’s not lost forever.

Here’s more information on what happens to your pension when you die.

A self-invested personal pension (SIPP) is where you decide where your money is invested, and you buy and sell these investments yourself, through your pension account.

Whereas a typical personal pension is where experts make all the decisions for you. You don’t need to lift a finger, just sit back, let them do work, while you watch your pension grow over time.

SIPPs are more flexible as you have more investment options, but they’re suited to experienced investors with a solid investment strategy. And often already have a personal pension managed by the experts, but want to add a few extra investments on top.

If you’re new to pensions, we’ve got our recommended providers above.

Yep! And it’s highly recommended, and very common. It's the best way to boost your total pension pot for a comfortable retirement.

A workplace pension is set up by your employer and it’s their choice who they decide your pension is with (and often not the best choice, with expensive fees and poor performance).

With a personal pension, you have control over who your pension is with, and can transfer to another company whenever you like. So you can choose a pension provider with low fees, good performance and perhaps have a great phone app that allows you to track your pension whenever you like.

You’ll also get all the same benefits as a workplace pension, such as tax-free contributions thanks to the government bonus, but you won’t get the employer contributions (which your employer is forced to make by law, and is a minimum of 3%).

If you’re lucky and have an employer who matches your contributions up to a certain point, it’s often better to pay into your workplace pension up until the point where your employer no longer matches your contributions (which is basically free money).

And after that point start paying into your own personal pension instead, to benefit from potential cheaper fees, better performance and more control over your money.

A stakeholder pension is another type of private pension, but an older type of pension, and not often used, but are still available, and some employers can offer them. However you most likely do not have one.

They were designed for those who might struggle to get access to a ‘regular’ pension – such as those on low incomes or who work part time (your employer is not required to open a pension for you in these circumstances), or you could be self-employed with fluctuating income.

However, they’ve mostly been replaced by personal pensions and self-invested personal pensions (and all the best private pension plan providers are listed above).

They’re slightly different however, they must follow 3 rules:

1. No penalties: your provider won’t be allowed to charge you a penalty fee if you stop contributing to your pension, or any fees if you decide to move it somewhere else (a withdrawal fee).
2. Low minimum payments: a provider must allow contributions as low as £20, and cannot make you pay more.
3. Cap of management charges: a provider cannot charge you more than 1.5% per year for the first 10 years, and then more than 1% after that. (sometimes called administration fees).

Although this all sounds great, and it is, most private pensions also have low fees and low minimum payments – so they’re not really that much different, and there’s also restrictions on where your money can be invested with a stakeholder pension, so they might actually grow slower than other pensions too.

If you’re self-employed, or on a low income, or just want a manageable pension to grow your pension savings, you’ll probably be better off with a personal pension such as PensionBee¹.

When you transfer your pension pot (pension plan) from one pension provider to another (transferring your pension), you might have to pay an exit fee. And previously this used to be quite a lot, but the Financial Conduct Authority has cracked down big time.

Here’s the new rules:

• No exit fees at all on any new pension plan set up after 31st March 2017
• Exit fees are capped 1% for those aged over 55 (if you do have an older pension with exit fees)
• The fee cannot be increased if it was previously below 1%.

Some pension providers were particularly greedy and had super high exit fees (as much as 10%) to deter you from transferring to a better provider, and staying with them. The downside to staying is they often had very high management fees too.

This means it’s often still better to pay the exit fee and change to a lower cost provider, as in the long run it would save you money more in total fees and your savings pot would increase more too.

Anyway, your new pension provider will let you know if there’s going to be an exit fee from your old pension plan and how much it is – so you don’t have to continue the pension transfer if you don’t want to. Often, there won’t be any exit fees, so don’t let the anticipation of a fee put you off.

Although it’s a great idea to put as much money into your pension as you can to have a nice big retirement income, there is actually a limit on how much the value of your pension can get to and still get all the same pension benefits.

It’s big though! It’s £1,073,100 million. So most of us won’t reach that amount, but it is reachable if your pension investments are doing well and grow large over time.

If you do reach the limit, you’ll have to pay some hefty charges when you withdraw your money.

With a private pension you would pay tax (income tax) when you take money out, with the first 25% being tax-free, and the remaining taxable (but you won’t pay tax if you withdraw less than the current personal allowance of £12,570).

Anyway, if you go over the limit of £1.073 million with your pension pot, anything above this you’d pay 55% on if you took it as a lump sum, ouch! And if you took it as an income you’d pay an additional 25% on top of what you would be paying in income tax – again, ouch!

The lifetime allowance can increase over time though, but it’s all up to the government. So don’t panic just yet, unless you’re close to the limit already!

A pension fund is a bit different to your actual pension provider. A fund is a collection of loads of cash from lots of different people – everyone’s pension pot. And this money is invested by the fund (often called the pension plan), with the aim to of growing it safely over time – so you have lots of money in retirement savings when you retire! 

The investments they make are often in exchange-traded funds (ETFs), which are groups of stocks and shares (tiny portions of ownership of a company), alongside other investments such as bonds (which are effectively loans to businesses and governments that pay interest) and sometimes property.

Pension funds have their own fees in addition to pension providers (mostly), and they’re deducted from your pension pot itself each year - you don’t need to pay anything extra yourself. These are called fund management costs, or sometimes an annual service fee.

Yep! All private pensions are regulated by the Financial Conduct Authority (FCA) – they’re the people who authorise and review companies to look after your money (the State Pension is managed by the government), and they also look out for pension scams.

Your money is also protected by the Financial Services Compensation Scheme (FSCS), which means if the company looking after your pension closed down or went out of business, you’d get some or all of your money back.

If your pension provider closed down, you’d get all of your money back. 

Plus, there’s a regulator just for workplace pensions, called The Pensions Regulator, to make sure workplace pension schemes are looking after your money.

If it was an SIPP operator, you would get back up to £85,000. However, with an SIPP your money is actually within the investments themselves, which are in your name, and can only be returned to you (the SIPP provider cannot access them). You are also covered per company, not in total.

If a financial adviser gives you bad advice, you could also get up to £85,000 compensation.

Of course, if the value of your investments go down, you are not protected. Your capital is at risk as they say. However pension funds aim to grow your money safely and securely over time in low risk funds.

When it comes to actually retiring, hopefully your pension pots will now be bulging!

With a private pension, you can start taking money out of your pension when you’re 55 (57 from 2028) – you don’t actually have to officially retire. However, often when you start taking money out, your allowance reduces to £4,000 per year, so you need to be sure. This is called the Money Purchase Annual Allowance (MPAA).

Before taking money out, you’d be able to add up to your whole income, or up to £40,000, whichever is lower, every tax year.

When you do want to retire and start spending your hard earned pension savings, the first 25% of your pension will be completely tax free! And you can take this as a tax free lump sum if you like. (This won’t reduce your annual contribution allowance.)

Or, if you take it as regular income, the first 25% of what you take will be tax free. Pretty good right?

Then you’ll pay Income Tax on the remaining 75%. Which is just the same as your income now (e.g. your salary), so you’ll have a Personal Allowance if £12,570 per year before you actually have to pay any tax, after that you’ll pay 20% (basic rate), on anything up to £50,270, and then 40% (higher rate) up to £150,000, and 45% after than (additional rate).

Taking money from your pension pots as income is called drawdown (sometimes called flexi-drawdown), but you also have another option, you could use your pension funds to buy a guaranteed income for the rest of your life (or for a set number of years). This is called an annuity.

You can only start claiming the State Pension when you’re 66, even if you retire early. You'll automatically receive a letter through the post.

It’s best to speak to a financial advisor if you want advice for your personal circumstances. It is your retirement income after all! You can find the best one for you with Unbiased¹, or you can speak to a free advisor with the government's Money & Pensions Service.

So, there we go! That’s all the information you need to compare the best private pension schemes. And really they’re personal pensions, you don’t get much say over which pension your employer chooses for you (the other type of private pension, called workplace pensions).

All that’s left to do is choose the best pension provider for you, and start saving money for your retirement fund (add pension contributions) and increase that retirement income for a secure financial future.

Here's a recap of the best pension providers:

• PensionBee
• Moneyfarm
• Penfold
• Wealthify
• Nutmeg
• AJ Bell
• Fidelity
• Interactive Investor
• Vanguard
• Aviva

As a quick recap as to how we decided the best – we’ve looked at:

How easy it is to set up and manage a pension, add money to your pension pot, the range of pension funds on offer, and costs – which are things like fund management charges, annual service charges and pension fees in general.

All the best with your pension savings! Slow and steady wins the race – add as much as you can afford when you can afford it, and automatic regular payments are a great idea.