Oakspan

Guide

How a UK private pension actually works

Most people now retire with a defined-contribution pot — a workplace scheme or a SIPP — rather than a final-salary pension. Oakspan models that pot: what it grows to, what you can take out, and how long it may last.

Defined contribution, not a promise

A defined-contribution (DC) pension is a fund of invested money in your name. You and usually your employer pay in. Tax relief is added. The pot rises and falls with markets. At retirement there is no guaranteed income unless you buy an annuity. That is the opposite of a defined-benefit (final-salary) scheme, which Oakspan does not model.

Workplace auto-enrolment pensions, many group personal pensions, and self-invested personal pensions (SIPPs) are all DC. If you have several, add the current values together in the calculator.

How far will the pot stretch?

Once you reach the normal minimum pension age — 55 today, 57 from 6 April 2028 — you can usually:

  • Take up to 25% as a tax-free lump sum (pension commencement lump sum), within the lump sum allowance of £268,275 for 2026/27.
  • Leave the rest invested and draw an income as needed — flexi-access drawdown.
  • Take ad-hoc lump sums (UFPLS), each 25% tax-free and 75% taxable.
  • Buy an annuity that pays a guaranteed income for life.

Drawdown is flexible and can outpace inflation if investments do well. It can also run out. Sequence-of-returns risk — a poor market in the first years of retirement — is why Oakspan includes a 20% shock test. An annuity cannot run out, but the income is usually lower to start with, especially if it rises with prices.

Tax on pension income

After any tax-free cash, drawdown withdrawals are taxed as income. So is the State Pension. For 2026/27 the personal allowance is £12,570 (tapered above £100,000). Basic rate is 20% up to £50,270 of income, higher rate 40% to £125,140, additional rate 45% above that — in England, Wales and Northern Ireland. Scotland uses different bands.

The full new State Pension is £241.30 a week (£12,547.60 a year), just under the personal allowance. Any private pension income on top is therefore usually taxable from the first pound.

Saving: annual allowance and tax relief

You can normally contribute up to 100% of UK earnings, capped by the £60,000 annual allowance (tapered for very high incomes). Even with little or no earnings you can usually pay £2,880 and have it topped up to £3,600. Triggering flexi-access drawdown can cut future DC contributions to the £10,000 money purchase annual allowance.

State Pension still matters

For most people the State Pension is the foundation and the private pot is the stretch. You usually need 35 qualifying National Insurance years for the full new State Pension. State Pension age is rising from 66 to 67 between 2026 and 2028. Check yours on GOV.UK rather than guessing.

Oakspan lets you set entitlement as a percentage of the full rate and choose whether your target income already includes it. That is the difference between “I need £28,000 all in” and “I need £28,000 from the private pot besides the State Pension”.

What this calculator is not

Oakspan is an independent illustration. It is not personalised advice, a pension forecast from your provider, or a substitute for a regulated financial adviser. Investment growth is unknown. Charges, lifestyling, guaranteed annuity rates, protected tax-free cash and defined-benefit income are not modelled. Read the rates and assumptions before relying on a figure, and use MoneyHelper if you want free, impartial guidance.

Ready to test your own numbers? Open the UK private pension calculator. Longer answers to the usual questions — how long a pot lasts, tax-free cash, the State Pension, withdrawal rates — are in the FAQ.