Whether you are thinking about retirement or just starting to earn, knowing how your pension works, how to build one and how to withdraw your pension are all important.

Your pension is an important investment and you should know your options so you can begin planning your future.

State pension

When you are 66 years old, the government will provide you with a state pension, a monthly payment which comes from taxes to allow those who have retired to afford the necessities.

You will receive a letter from the government when you reach the suitable age with information on withdrawing your pension as regular payments.

The age at which you can withdraw your state pension is gradually increasing.

  • The life expectancy age is increasing as health solutions are advancing as well as working conditions improving allowing people to live for longer.
  • There is a large population of people retiring and a declining population of young workers who pay taxes. This could be due to a fall in birthrates so younger generations are becoming smaller or those who earn enough to pay taxes to support the retirement age is declining. This means there is less money to be able to financially support all those retiring.

The state pension is determined from the amount of National Insurance contributions you have made throughout your working life. You will need at least 10 qualifying years on your National Insurance record to receive your state pension. You will be able to receive a state pension without National Insurance contributions if you have been on any type of benefits including, universal credits and a carer's allowance.

The Government aims to increase the state pension allowance to remain in line with the cost of living and inflation each year.

What are Qualifying years?

If you are employed and earning over a set amount you will be paying National Insurance tax which will build up and you will receive your state pension if you have been doing this for a minimum of 10 years. This does not have to be 10 years in a row, just 10 years throughout your working life.

  • You are employed and earning over £242 a week (2023 to 2024) from one employer and paying National Insurance contributions.
  • If you are employed and earning between £123 and £242 a week from one employer and are treated as having paid National Insurance contributions
  • If you are self- employed and paying Class 2 National Insurance contributions (£3.45 a week from 2023 to 2024) you will qualify.
  • you can make voluntary National Insurance contributions.


Workplace Pension

You will be auto-enrolled by your workplace into a pension scheme where a percentage of your salary will be added to the pension pot. This will usually be 8% in total with 3% coming from your employer and the rest from your salary. You should receive a letter from the pension provider chosen by your workplace when they have set this up, you will be given details of the specific scheme in full.

You can choose to opt out of the workplace pension if you wish however this is a great way to start a pension pot without it affecting your take home salary too much. The money that goes into your pension is also tax-free.

Private pension

Setting up a personal pension scheme could be beneficial if you are not in a job that automatically enrols you on one, you want to start saving for your pension early or you want to have extra money for your retirement.

  • You will have to select your pension provider; your private pension will be invested in the stock market. You can choose whether these are chosen for you or you can select where your pension is invested into.
  • Your pension could grow over time and you can make regular or lump sum payments into it at any time you like.
  • You will automatically receive a 25% top up from the government on any contributions you make up to the annual limits.
  • Once you retire and withdraw your pension you can receive 25% of the fund tax-free.


The state pension will only be enough to afford the basic necessities once you retire so it would be beneficial to choose another option as well. When you make payments into your pension pot you are investing into your future and ensuring you will be able to have a good life in retirement.

It is never too early to begin your pension pot!