What is a private pension? 

A private pension is a pension you build yourself, separate from your workplace pension. tIn most cases only you contribute, though limited company directors can also receive employer contributions from their own company."  Either way, you’ll still receive tax relief on qualifying contributions and you decide how much to pay in and where the money is invested.

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The main types of private pensions

‘Private’ or ‘personal’ pension is often used as a blanket term for all of these options, there are actually three distinct types of pension ‘wrappers’. They all offer the same tax-relief, they differ in fees, investment choice and flexibility.

What is a personal pension?

Sometimes called a standard personal pension, this is the most common off-the-shelf option offered by large providers such as Aviva, Royal London etc. 

• You pay into a pot which is invested in a range of funds managed by the provider. 
• It’s a straightforward option for those who want a hands-off approach, as the provider handles your investments based on your risk profile.
• You’ll have less control and a narrower choice of investments compared to a Self-Invested Personal Pension (SIPP).

What is a stakeholder pension?

A stakeholder pension is a specific type of personal pension that has to meet strict government rules around fairness and accessibility.

• Providers can charge a maximum of 1.5% (drops to 1% after 10 years), and they must accept low minimum contributions (£20). 
• They are a popular choice for people on lower incomes or those who need to stop and start payments frequently without penalties.

What is a SIPP?

We’ve already covered the Self-Invested Personal Pension, but here’s a quick reminder in the context of other private pensions. 

This is the ‘DIY’ version of a personal pension, where you can select your investments yourself and have full control over your investment decisions. You typically aren’t limited to a standardised set of investment options, you can choose what works for you, and keep full oversight.

What is a junior SIPP?

A junior SIPP is a tax-efficient way to save for a child’s retirement. A parent or guardian can open the account, but the money belongs to the child.

You can pay up to £2,880 a year into the account. The government adds tax relief of £720 to this bringing the total to £3,600. The child cannot access the money until they reach age 55 (rising to 57 in 2028). 

What is a Lifetime ISA? 

A Lifetime ISA (LISA) is not technically a pension, but it is often used as an alternative for self-employed people. 

• You can save or invest up to £4,000 a year, and the government adds a 25% bonus (up to £1,000 free). 
• You must open a LISA before your 40th birthday, and can only continue making contributions until age 50. 
• You can withdraw the money tax-free after age 60. If you take it out earlier (unless buying a first home), you pay a 25% penalty. Note that the 25% penalty claws back more than just the government bonus — on a £100 contribution you'd receive £125 with the bonus added, but the penalty takes £31.25, leaving you with just £93.75. You effectively lose a small portion of your own money, not just the bonus. 
• Pension vs LISA: A pension is often preferred by higher-rate taxpayers (because you get 40% relief), while a LISA can be excellent for basic-rate taxpayers who want tax-free access at 60.

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Private pensions for the self-employed

If you’re self-employed your income may fluctuate, and pension saving can seem daunting if you’re unable to commit to a fixed monthly Direct Debit. A SIPP can give you:

• Flexibility to adjust contributions to your pension. You can pay in lump sums when you have a good month, and pay nothing if you need to take a break.
• Full transparency and low fees make SIPPs a good option if you aren’t ready to invest immediately.

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Private pensions for a limited company director

If you run your own limited company, a good way to save is actually through employer contributions:

• Instead of paying yourself a salary (which is taxed) and then paying into a pension, your company pays directly into your pension.
• This counts as an allowable business expense. Your company saves Corporation Tax on the contribution, and you pay no Income Tax or National Insurance on the money entering your pot. 

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What age can I draw my private pension? 

Private pots are designed to support you in later life, so the government has set rules for when you can start withdrawing the money from your pension.

• Under current rules you can access your pension from age 55.
• From 6 April 2028, the minimum pension age will rise to 57.

This applies to almost all private pensions (SIPPs, stakeholder and personal). The main common exceptions are if you are unable to work due to serious ill health, in which case you may be able to access it earlier.

Also, if you joined certain pension schemes before 3 November 2021, you may have a 'protected pension age' allowing you to access that pension from 55 even after the 2028 change. 

Read our full guide on retirement ages.