Once retirement age is reached, every qualifying British citizen is entitled to the Basic State Pension. This is a regular payment made direct to individuals by the Exchequer, and is designed to act as an income to cover living expenses after retirement. In reality, however, the Basic State Pension is wholly insufficient; at its current level (2026-27) it amounts to a maximum of £184.90 per week.
To understand how much you could realistically set aside for pension contributions from your current salary, you can use our free Income Tax Calculator.
Income Boosting
The major reason, therefore, for joining a pension scheme on top of your entitlement to the Basic State Pension, is that your income will simply be too small otherwise. If, for example, you will still be renting a property (or, in some cases, even still paying a mortgage), then this sum may not even cover your accommodation expenses. As a result, most people will find that they need an extra source of income.
Until 2002, the State Earnings Related Pension Scheme, or SERPS, was also available. This scheme has now been remodelled and was known as the additional State Pension, and offers a better deal for those who have been on low or middling incomes. This is granted in addition to the Basic State Pension, and the amount that you can claim is based on your earnings and your national insurance contributions.
Since the remodelling of SERPS, there has been some disagreement between financial advisors as to whether or not to 'contract out' your pension – that is, whether or not to make reduced NIC contributions and instead make contributions to an occupational scheme. This is covered in more detail in the article Opting Out Of State Earning Related Pensions.
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Occupational Schemes
If you are offered a pension scheme by your employer, then it is generally recommended that you should join it. This will require you to make regular contributions, which will normally be taken directly from your wage packet using PAYE. This means that you will not have to take on the responsibility for making contributions of your own accord.
The most important benefit of an occupation pension scheme, however, is that in most cases your employer will also make contributions to your fund. In many instances, your employer will match the amount that you put in. As a result, your money will go considerably further in an occupational pension scheme than in a private one, and will leave you in a better financial position when you eventually reach retirement.
In some cases, however, employers may offer occupational pension schemes to which they do not make contributions themselves. If this is the deal being offered by your employer, you will probably want to investigate Private Pension Schemes. This will also be the case if you are self-employed, and therefore have no access to an occupational pension scheme of any sort. There are a wide variety of private schemes available, many of which offer better value for money that an occupational scheme to which your employer does not contribute. The major differences between different types of pension scheme, and some recommendations as to what to look out for when shopping around, are covered elsewhere in this section.
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