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Private pensions, often referred to as personal pensions, are a way of saving for retirement. They're pots of money that offer large tax breaks when you pay in, but that you can't access until you're 55 (or 57 from 2028). They are a type of defined contribution pension, which means that the amount you’ll get when you retire depends on how much you pay in, the tax relief you received, and how well your investments do.

The money you pay gets income tax relief – subject to an annual allowance and relevant earnings rules, and all your investment gains are also tax-free. When you stop working, you can take 25% of the money you’ve saved without paying any tax, and the rest is taxed at your marginal rate.

While personal pensions are a great way to save for retirement, if you’re employed, you should make sure you’ve been auto-enrolled and are getting employer contributions. You should also make sure you’ve taken advantage of any company matching schemes (where your boss pays extra if you choose to) before taking out a personal pension.

Generally, personal pensions are good for:

• People who are self-employed

• People who don’t have a workplace pension

• People who are taking time out of the workplace

• People who want extra savings on top of their auto-enrolment pension (however, it is usually cheaper to increase your workplace contributions as these schemes are subject to a charges cap)

• People who want to save into a scheme for their children or grandchildren.

When choosing a private pension there are two main things to look at - charges and choice.

High fees eat into your money, making any returns you make smaller.

Choice of investments is a personal matter - some people value the ability to pick what they put money into, others would rather let someone else do it for them.

In simple terms, if you are looking for control over your money, a SIPP with low charges is best.

If you want to relax and let a professional manage your cash for you, look for a managed private pension account.

But always check the fees, as there can be large differences even between firms offering what look like similar services.

All staff aged between 22 and state pension age who earn more than £10,000 from a single employer in a year will be automatically enrolled into a workplace pension.

There are plans to  – but there's currently no timescale for when this will come into effect.

��������Dz�������must enrol staff on workplace schemes when they join the company – and then make contributions on their behalf.

There are two kinds of workplace scheme, defined benefit (DB) or defined contribution (DC). In a DB scheme, what you get at retirement is based on your salary. They’re sometimes also called final salary or career average salary schemes. When you retire, you’re paid a guaranteed fixed amount for the rest of your life. These gold-plated schemes are rare, and most often seen in the public sector.

Most people in the private sector will be in a DC scheme. Here, what you have to retire on will be determined by how much you save, how much your employer contributes, and your investment returns. The more you put away, the better your retirement lifestyle will be.

�³󾱱�����you'll automatically be enrolled into a pensions scheme when you start working for a company, you can opt out if you wish, but this means you will lose out on the top-ups your employer would otherwise make and the tax relief.

Having a workplace pension doesn't mean you can't also have a personal pension as well if you want to make additional contributions. However, it makes sense to take advantage of employer top ups if you can. Some employers will offer to match any extra contributions you make, meaning you’ll get a better return if you save more into your workplace scheme.

Being self-employed doesn't stop you signing up to a private pension, or receiving tax breaks on contributions.

In fact, you can even - a national pension scheme set up to make it easier for employers to meet their duties under automatic enrolment. 

The main difference is that if you are a higher-rate taxpayer, you will have to claim tax relief as part of your self-assessment form to get the full 40%.

Tax breaks on pensions work to ensure a simple premise: that you’re only taxed on the money once.

This means workplace and private pension contributions qualify for income tax relief - which can be paid into your pension to further swell its coffers. Once transferred to your pension pot, any growth in your savings is also largely tax-free.

If you are a higher or additional rate taxpayer saving into a private pension or non-salary sacrifice workplace pension, you will need to do a self-assessment tax return to claim your higher rate of return.

But while you escape tax when building up a pension pot, when you start drawing on it to fund your retirement it will be subject to the same rate of income tax as if it were money earned through a job.

Note that workplace and private pensions come with limits on the tax relief you can get:

• You can only get tax relief on the equivalent of your annual salary in any given year - with a hard limit of £60,000 no matter what you earn

• Once you start drawing on your pension, the amount you can put away each year and still get a tax break falls to just £10,000 

A lifetime allowance on what you had saved up overall used to apply as well, but was scrapped from April 6, 2024.

Pensions are not the only way to get a top up on your retirement savings. Another option is lifetime ISAs.

If you save into a lifetime ISA, the government adds a 25% top up, as long as you wait until you're 60 to withdraw the money or use it to buy a first home.

But there are conditions attached.

• Firstly, you can pay in no more than £4,000 a year

• Secondly, you can only open one between the ages of 18 and 40

• Thirdly, you can only pay money in between the ages of 18 and 50

However, they have two key advantages over private pensions as a way to save.

The first is that money is tax free when you withdraw it. The second is you can access your money before 60. However, if you choose to do that, you'll lose 25% of anything you withdraw unless you are using the money for a first home.

The level of compensation offered depends on the type of pension you have and which organisation regulates it.

SIPP holders can claim up to £85,000 back from the FSCS (Financial Services Compensation Scheme) if the UK-regulated investment provider fails.

If your pension plan is classed as a "contract of long-term insurance" - as is the case with most annuities – there's no cap on the compensation that may be awarded: the FSCS can cover 100% of the loss.

If you have a workplace pension and the provider fails, the FSCS will pay 100% of your claim with no upper limit.

The PPF (Pensions Protection Fund) steps in if a defined benefit scheme fails. This means that people already claiming their pension can continue to receive their promised payouts, while people yet to claim are offered up to 90% of their pension.

Every pension company found in our private pension comparison is regulated by the FCA (The Financial Conduct Authority).