How UK Pensions Work: Ages, Tax Relief, Tax-Free Cash and Inheritance
Quick answer
A UK pension is a tax-sheltered pot, not a savings account: the government adds tax relief when you pay in. You can access a private or workplace pension from age 55 (57 from April 2028), which is separate from the State Pension age of 66 (rising to 67). Up to 25% comes out tax-free.
UK pension rules at a glance (2026/27)
| Rule | The figure |
|---|---|
| Private / workplace pension access age | 55 now, rising to 57 on 6 April 2028 |
| State Pension age | 66 now, rising to 67 between 2026 and 2028 (68 legislated for 2044-2046) |
| Tax-free lump sum | 25% of your pot, capped at £268,275 across all pensions |
| The rest of the pot | Taxed as income at your marginal rate when you draw it |
| Tax relief on contributions | 20% basic rate, 40% higher rate, 45% additional rate |
| Relief if you pay no tax | Still 20% at source: pay in £2,880, HMRC tops it to £3,600 |
| Annual allowance | £60,000 a year (limited to 100% of your earnings) |
| Money Purchase Annual Allowance | Drops to £10,000 once you flexibly draw taxable income |
| Minimum auto-enrolment contribution | 8% of qualifying earnings, at least 3% from your employer |
| Auto-enrolment trigger | Aged 22 to State Pension age, earning £10,000+ a year |
| Full new State Pension | £241.30 a week, usually needs 35 qualifying NI years |
| Pensions and Inheritance Tax | Outside your estate now; most unused pots come into IHT from 6 April 2027 |
A UK pension is a tax wrapper, not a savings account, and the confusion usually starts with age, because there are two and they are not the same. Your private or workplace pension can be accessed from age 55, rising to 57 on 6 April 2028, whether or not you have stopped working. The State Pension is separate: it is paid by the government from State Pension age (66, rising to 67 between 2026 and 2028) and cannot be taken early. The table above sets out the rules and figures that trip people up.
The tax treatment is what makes a pension powerful. Contributions get relief at your marginal rate (20%, 40% or 45%), so a £100 pot can cost a higher-rate taxpayer as little as £60. At the other end, 25% comes out tax-free and the rest is taxed as income, and because many people sit in a lower tax band in retirement than while working, the rate paid on the way out is often lower than the relief given on the way in. A workplace pension adds one more layer: under auto-enrolment your employer must contribute at least 3% of your qualifying earnings, which is money you only receive if you stay in the scheme.
One long-standing rule is changing: pensions have sat outside your estate for Inheritance Tax, but from 6 April 2027 most unused pension funds are brought into its scope. For the fuller picture, read UK pensions explained, see how the ISA-to-pension bridge funds early retirement before 57, weigh ISA vs pension for where to save first, and check what the workplace pension and auto-enrolment actually give you.
Frequently asked questions
What is the difference between the State Pension age and the private pension age?
They are two separate things. The State Pension age (66, rising to 67 between 2026 and 2028) is when the government starts paying you the State Pension, and you cannot take it early. Your private or workplace pension age is separate: 55 now, rising to 57 on 6 April 2028, and you can access it while still working.
Can I take 25% of my pension tax-free?
Yes. You can normally take up to 25% of your pension as a tax-free lump sum, capped at £268,275 across all your pensions (the lump sum allowance). The remaining 75% is taxed as income at your marginal rate when you withdraw it.
How much does my employer have to pay into my pension?
Under auto-enrolment the minimum total contribution is 8% of your qualifying earnings (the slice between £6,240 and £50,270), of which your employer must pay at least 3%. Many employers pay more than the minimum, so it is worth checking your own scheme.
Do you get pension tax relief if you do not pay tax?
Yes, if your pension uses relief at source (most personal pensions and SIPPs). The provider adds 20% basic-rate relief even if you pay no Income Tax, on contributions up to 80% of your earnings, or £2,880 a year if you have no earnings: you pay in £2,880 and HMRC tops it up to £3,600. The exception is workplace net pay schemes, where a non-taxpayer may get no relief, though HMRC now tops up low earners.
Do you pay Inheritance Tax on a pension?
Not currently. An unused defined contribution pot normally sits outside your estate: if you die before 75 your beneficiaries usually pay no income tax on it, and at 75 or over they pay income tax at their own rate. From 6 April 2027, most unused pension funds are also brought into the scope of Inheritance Tax.
Do I have to stop working to take my pension?
No. Under pension freedoms you can access a private pension from 55 (57 from April 2028) and keep working. But taking taxable income beyond your 25% tax-free cash triggers the Money Purchase Annual Allowance, cutting how much you can pay in with tax relief to £10,000 a year.
Sources
- gov.uk - Increasing the normal minimum pension age (to 57 from 6 April 2028)
- gov.uk - State Pension age timetable
- gov.uk - Tax on your private pension: lump sum allowance (£268,275)
- gov.uk - Tax when you get a pension
- gov.uk - Tax on your private pension: tax relief
- gov.uk - Tax on your private pension: annual allowance (£60,000)
- gov.uk - Check if you have gone above the Money Purchase Annual Allowance (£10,000)
- gov.uk - Workplace pensions: what you, your employer and the government pay
- gov.uk - Joining a workplace pension (auto-enrolment thresholds)
- gov.uk - The new State Pension: what you will get
- gov.uk - Tax on a pension you inherit (death benefits)
- gov.uk - Inheritance Tax on unused pension funds and death benefits (from 6 April 2027)
General information, not financial advice. Tax rules and figures can change; check the current position on gov.uk before acting.