Individual pension plans: how to choose the best one for you

The short answer: An individual pension plan is a personal pension you set up yourself. The main types are standard personal pensions, stakeholder pensions and SIPPs. In 2026/27, your provider adds 20% tax relief on payments up to £60,000 a year. You can usually take money from 55, rising to 57 in April 2028.

What is an individual pension plan?

It's a pension you arrange yourself, rather than one your employer sets up for you. GOV.UK calls these personal pensions. They're "defined contribution" pensions, which means there's no promised income at the end. What you get depends on:

• how much is paid in

• how the investments do (they can go up or down)

• the fees you pay

• how you choose to take the money

They're most common if you're self-employed, don't work, or want a pot alongside your workplace pension. You can usually start one from age 18, and usually can't open or pay into one after 75.

If you have an employer, check their scheme first. MoneyHelper says a workplace pension could give you a bigger pot because your employer pays in too and charges are often lower. You can have both, and our guide on having both a workplace and individual pension explains how they fit together.

Capital at risk. The value of your pension can go down as well as up, and you may get back less than you pay in.

Tax treatment depends on the individual circumstances of each client and may be subject to change in future.

SIPP vs personal pension: what types are there?

There are three main types, and they all get the same tax relief. MoneyHelper says the only real differences are fees, investment choice and any minimum payments.

The table uses descriptions from MoneyHelper and GOV.UK. Actual fees vary by provider.

Worth knowing before you choose:

• You don't have to pick shares in a SIPP. Most SIPP providers will pick investments for you unless you'd rather choose. "Low cost" SIPPs offer fewer options, and "full" SIPPs offer more at a higher price.

• Stakeholder pensions must meet government requirements, such as limits on charges.

• Group personal pensions are ones an employer sets up. You still have your own contract with the provider.

How does tax relief work on a personal pension?

Your provider claims 20% basic-rate relief from the government and adds it to your pot. This is called relief at source, and it applies in all personal and stakeholder pensions. So if you pay in £80, £100 goes into your pension.

Here's what £100 in your pot costs you, by Income Tax rate:

These figures are for England, Wales and Northern Ireland, and assume all your payment falls within that tax band. Scotland has different rates.

There are limits, though:

1. You get relief on payments up to 100% of your earnings in the tax year.

2. If you have no earnings, your provider can claim relief on up to £2,880 a year.

3. The annual allowance is £60,000 this tax year. It covers everything paid into all your pensions, including by an employer.

4. You may be able to carry over unused allowance from the previous 3 tax years.

5. Your allowance can be lower if you have a very high income, or if you've already started taking money flexibly (the "money purchase annual allowance").

Your scheme must also be registered with HMRC, or you won't get tax relief. Our guide to personal pensions and tax relief goes into more detail.

How do I claim the extra tax relief as a higher-rate taxpayer?

You claim it yourself, because your provider only adds the first 20%. You can claim through Self Assessment, on GOV.UK or by contacting HMRC.

GOV.UK says you can claim an extra 20% on the amount of income you paid 40% tax on, and an extra 25% on income taxed at 45%.

Example: a £4,000 payment, worked through

These are made-up, round numbers. Say you pay £4,000 into your personal pension, and you paid 40% tax on at least £5,000 of your income.

• Your provider adds £1,000 of basic-rate relief, so £5,000 goes into your pot.

• You then claim an extra 20% of £5,000, which is £1,000, through Self Assessment.

• So £5,000 in your pension has cost you £3,000 overall.

If only part of your income is taxed at 40%, you only get the extra relief on that part. GOV.UK's own example shows someone paying £12,000 in but only claiming extra relief on £10,000.

What does a personal pension cost?

Most pensions charge a yearly fee as a percentage of your pot, and some add other costs on top. MoneyHelper lists the common charges:

• an annual management charge

• an ongoing charge for the funds you're in

• platform or admin charges

• trading fees each time you buy or sell, if you pick your own investments

• one-off fees to transfer out or take money at retirement

Those percentages look tiny, but they come out of your pot every year. MoneyHelper's example takes a £30,000 pot:

The cheapest isn't always the best fit, though. Check what you get for the fee, and whether an older scheme would raise its fees if you stop paying in.

How do I choose the best personal pension for me?

There's no single best one, a bit like there's no single best pair of shoes. It depends on how hands-on you want to be and what you're happy to pay. And there's no comparison site covering the whole market, so you'll need to compare providers yourself.

MoneyHelper suggests checking:

1. fees and charges

2. minimum and maximum payments

3. penalties for starting and stopping payments

4. investment options, including ready-made funds

5. your options for taking money at retirement

6. help and support, and reviews from customers

Then, before you sign:

• check the provider on the FCA Firm Checker

• note the cooling-off period (normally at least 30 days)

• walk away from anything that came from a cold call, email or text

A regulated financial adviser can recommend a pension for you, but you'll usually pay for that advice.

When and how can I take money out?

Usually from age 55, rising to 57 from 6 April 2028. Some schemes set a later age.

You can usually take up to 25% tax-free, capped at £268,275. For the rest, your options include:

• taking cash, all at once or bit by bit

• buying an annuity, which gives you a guaranteed income for life

• flexi-access drawdown, where the money stays invested and you take an income

Anything above the tax-free part is taxed as income, so a large withdrawal could push you into a higher tax band. You also don't have to buy an annuity from your own provider.

How much will you need? The PLSA's Retirement Living Standards put a "moderate" retirement for one person at £32,700 a year. That covers things like a yearly holiday abroad.

One change to know about if you're planning what to leave behind: from 6 April 2027, most unused pension money will count towards your estate for Inheritance Tax. The standard rate is 40%, charged only above the £325,000 threshold.

What happens to my personal pension if the provider goes bust?

You may be covered by the Financial Services Compensation Scheme (FSCS). How much depends on the type of provider. For firms that failed after 1 April 2019, the FSCS says:

Most personal and stakeholder pensions from UK-regulated insurers get the full cover. SIPPs are usually treated differently. FSCS can't confirm individual plans, so ask your provider which applies to yours.

Can I move my old pensions into a personal pension?

Usually, yes. You can transfer to another registered UK pension scheme, if both schemes allow it. A transfer often takes 2 to 6 weeks, though your provider has up to 6 months.

Before you move anything, check for:

• exit fees

• guaranteed annuity rates or with-profits bonuses

• a protected pension age that lets you take money earlier

If you have a final salary pension worth over £30,000, you must pay for financial advice before you can transfer it. If you're thinking of tidying up old pots, here's how to combine them into one individual pension plan.

What if I'm self-employed?

A personal pension is one of the main ways to save for retirement when there's no employer paying in. The same tax relief and limits apply, and you can pay in regularly or in one-off lump sums.

That flexibility helps if you're a freelancer with unpredictable income. You might pay in a little each month and add more after a good quarter. You can plan around irregular income with our free calculator, and the carry-forward rules may let you pay in more in a strong year.

If you run a limited company, it can pay into your pension as your employer. HMRC says this is usually an allowable business expense, unless it's for a non-trade purpose. For a side-by-side look at options, see the best pension for self-employed people.

What can I do now?

1. Check if you can join a workplace pension first.

2. Decide how hands-on you want to be. That points you to a standard pension, a stakeholder pension or a SIPP.

3. Compare 2 or 3 providers using MoneyHelper's checklist above.

4. Check your State Pension forecast to see what you're already on track for.

5. If you pay tax above 20%, claim the extra relief.

Everyone's situation is different, so we can't say what's right for you. MoneyHelper offers free, impartial guidance, and if you're 50 or over you can book a free Pension Wise appointment.

Still got questions?

Is it worth getting a personal pension? It depends on your situation. Tax relief adds to what you pay in, but the money is locked away until at least 55 (57 from April 2028), so it's worth having other savings you can reach too.

Can I have more than one personal pension? Yes, as many as you like. But you'll usually pay charges to each provider, and the £60,000 annual allowance covers all of them together.

Can someone else pay into my pension? Yes. If a partner pays into your relief at source pension, you still get 20% tax relief added.

What happens to my pension when I die? Your provider will ask you to fill in an expression of wish form saying who should get it. If you die under 75, most lump sums are paid tax-free within the allowance. From 75, the person who inherits pays Income Tax on it.

How do I complain about my pension provider? Contact them first. They have 8 weeks to respond, and after that you can go to the Pensions Ombudsman or Financial Ombudsman Service.

Can I change my mind after signing up? You normally have at least 30 days to cancel and get a refund. Check your provider's cooling-off period.