Different types of pensions: What you need to know

We look at the various types of pensions available, and offer our top tips to help you find any hidden money and fine-tune your retirement savings strategy.


  • On average, a person will work for 11 employers during their working life, with a quarter of people having 14 or more.1
  • It’s important to work out exactly what pensions you have – this includes the provider’s names, account details, the type of pension scheme and what you’re entitled to.
  • An adviser will help you review your different pots and create a retirement plan to use them in the most efficient way possible.

After spending many years working hard, everyone deserves to have the best retirement possible – although each person’s pension savings and goals will be different, everyone’s planning begins with understanding what savings you have and whether you’re getting the best from it.

Accumulating a few different pension pots can make planning complicated – statistics from the Department for Work and Pensions show that the average person will work for 11 employers in their lifetime, and a quarter of people will have 14 or more.1 Many people can therefore reach middle age and have their retirement savings split across several different pots, including workplace schemes, private pensions and your state entitlement.

Losing track of pensions isn’t uncommon either, with an estimated £400 million gathering dust in dormant accounts,2 most often because people have lost the paperwork, forgotten the name of their provider or even because they can’t remember whether they had a pension with a former employer. Help is at hand, however, and you can use a free Pensions Tracking Service (0800 731 0193) to help reunite you with your investments.

What types of pension are there?

Many workplace pensions fall into the categories of either Defined Contribution (DC) or Defined Benefit (DB) – it’s wise to make yourself familiar with what these are and how these work, as the type of pension you have will affect the options available to you in retirement.

Defined Benefit pensions

Sometimes called ‘final-salary’ schemes, Defined Benefit pensions are run through an employer and pay out a guaranteed income every year in retirement – often a sum that rises with inflation. You’re usually able to take a tax-free cash lump sum as well.

The benefits received with this scheme are based on your earnings and how many years you’ve been in the scheme for. The rules of the scheme also dictate what age you need to be to take benefits – normally between 60-65.

This kind of scheme doesn’t allow you to take a varied income, meaning it won’t have as much flexibility as you’d perhaps like. The benefits of a guaranteed income for life, however, usually make these schemes worth keeping anyway.

DB schemes are not as common as they used to be, because they’re expensive for employers to run, making DC pensions much more likely in today’s workplaces.

Defined Contribution pensions

With this kind of pension, individuals can build up a pot of money and then choose from a range of options when they reach the age of eligibility (currently 55).

These schemes, unlike DB pensions, are usually run by pensions companies rather than your employer, who invest the money into a range of funds. Your employer may, however, match your contributions up to a limit.

The size of the pot when you come to retire will be based on how much you’ve paid into the scheme, as well as how well your investments have performed – along with any charges from the provider. Your savings will also get a boost from tax relief being paid on your contributions, with the amount you receive depending on the rate of income tax you pay.

Flexibility is a big benefit of a DC pension scheme, as it allows you to access your savings in several different ways. Yet there are no guarantees when it comes to how your investments will perform or the size of your pension pot at retirement.

How can an adviser help?

Everyone’s needs are different when it comes to planning their retirement, which is why advice is important. There’s no ‘one size fits all’ approach, and there are many ways of getting your desired retirement income with the pension types above. An adviser will help you create a retirement plan to use them in the most efficient way possible.

If you’d like help understanding the options available, we’d love to hear from you.


1 Meeting future workplace pension challenges: improving transfers and dealing with small pension pots, Department for Work and Pensions, December 2011

2 New Pension Tracing Service website launched, Department for Work and Pensions, May 2016

The value of an investment with Wellesley Wealth Advisory will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are dependent on individual circumstances.

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