Our Pick Of Best Pension Providers For Self-Employed Workers

Former Editor

Kevin Pratt

Editor

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Updated: Jul 17, 2024, 5:52pm

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Pension providers enable self-employed workers to build up a pot of money for retirement by investing their contributions, boosted by associated tax relief, in a range of assets.

While employees are automatically enrolled in workplace pension schemes, the onus is on self-employed workers to make their own provision for retirement. We’ve carried out research on our pick of the best personal pension providers for self-employed workers on the market, including fees and the choice of investments.

Tax treatment depends on one’s individual circumstances and may be subject to future change. The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of tax advice.

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Via Unbiased.co.uk

Best personal pension providers – our pick of the best

We researched a range of personal pension providers and have listed our findings below, together with a methodology explaining how we arrived at our Forbes Advisor star ratings.

BEST FOR HIGH-VALUE PORTFOLIOS

interactive investor (SIPP)

Platform fee

Pension Essentials plan, flat fee of £5.99pm up to £50,000. Pension Builder plan, £12.99pm (£50,000+).

Fund fee

Quick-Start funds: 0.22% – 0.28%

Investment choice

6 Quick-Start funds, over 40,000 shares, funds and ETFs

Platform fee

Pension Essentials plan, flat fee of £5.99pm up to £50,000. Pension Builder plan, £12.99pm (£50,000+).

Fund fee

Quick-Start funds: 0.22% – 0.28%

Investment choice

6 Quick-Start funds, over 40,000 shares, funds and ETFs

Why We Picked It

interactive investor is owned by fund management group, abrdn.

For the Pension Essentials plan, customers with pension pots worth £50,000 or less pay £5.99 pm. For pots over £50,000, the Pension Builder plan costs £12.99pm.

Existing ii individual savings account (ISA) customers with Investor or Super Investor plans can add a self-invested personal pension (SIPP) for £10pm. Investor Essentials clients can add a SIPP for £5pm, providing their SIPP and ISA total is £75,000 or less.

Six ready-made ‘Quick-Start’ funds are available, comprising three Vanguard LifeStrategy index funds and three Columbia Threadneedle actively managed sustainable funds.

Ii’s Super 60 list includes ‘best in class’ active and passive funds, exchange-traded funds (ETFs), and investment trusts. The ACE 40 range of funds is aimed at ethical investors.

Overall, the platform provides access to more than 40,000 UK and international shares, 3,000 funds, 1,000 ETFs, and 600 investment trusts.

Customers can also connect with each other through the ii Community app. This app enables users to chat and compare portfolios, follow market news and receive analysis of their portfolio.

No minimum contribution for lump sum investments, or £25pm for regular payments.

At retirement, customers have the choice of taking a cash lump sum, buying an annuity, or flexible income drawdown (see ‘What is a personal pension? Below).

Overall, ii offers competitive fees and a wide range of investments.

Pros & Cons

Flat platform fee
Excellent choice of funds
Lifestyle profiling available
Low minimum contributions
Available directly

Platform fee expensive for small-value portfolios
High fund fees for some model portfolios

Typical fees

Portfolio of £10,000: £93.89 per annum (Pension Essentials plan)
Portfolio of £50,000: £181.89 per annum (Pension Essentials plan)
Portfolio of £200,000: £595.88 per annum (Pension Builder plan)

JOINT BEST LOW-COST PROVIDER

Vanguard (SIPP)

Platform fee

0.15%, capped at a maximum of £375pa.

Fund fee

LifeStrategy funds, 0.22%. Target Retirement funds, 0.24%.

Investment choice

16 ready-made portfolios; 80+ active and passive funds.

Platform fee

0.15%, capped at a maximum of £375pa.

Fund fee

LifeStrategy funds, 0.22%. Target Retirement funds, 0.24%.

Investment choice

16 ready-made portfolios; 80+ active and passive funds.

Why We Picked It

Vanguard is a global investment company with over 30 million customers.

Pension clients can choose from five LifeStrategy ready-made managed portfolios (each offering a differing mix of equities to bonds) and 11 Target Retirement managed portfolios (allowing a switch into lower-risk assets towards retirement).

Customers can also choose from 80 active and passive Vanguard funds, invested across a range of assets and regions.

Minimum contributions are £500 (lump sum) and £100pm.

At retirement, customers have the choice of a cash lump sum, buying an annuity, or flexible income drawdown.

For customers happy being limited to Vanguard’s own investments, this is a low-cost option with a fair choice of funds.

Pros & Cons

Lowest platform fees
Low fund charges
Lifestyle profiling available
Low minimum contribution for lump-sums
Available directly

Vanguard funds only
One of higher minimum contributions for monthly investing

Typical fees

Portfolio of £10,000: £37 per annum
Portfolio of £50,000: £185 per annum
Portfolio of £200,000: £815 per annum

JOINT BEST LOW-COST PROVIDER

Pension Bee (personal pension)

Platform fee

Inclusive of both platform and fund fee. Varies with plan ranging from 0.5% to 0.95% for portfolios up to £100,000; balance over £100,000 charged at 0.25% to 0.52% depending on plan.

Fund fee

Fees by plan: Tracker and Preserve, 0.5%; Pre-Annuity and Tailored, 0.7%; Climate, 0.75%; 4Plus and Shariah, 0.95%.

Investment choice

7 ready-made portfolios.

Platform fee

Inclusive of both platform and fund fee. Varies with plan ranging from 0.5% to 0.95% for portfolios up to £100,000; balance over £100,000 charged at 0.25% to 0.52% depending on plan.

Fund fee

Fees by plan: Tracker and Preserve, 0.5%; Pre-Annuity and Tailored, 0.7%; Climate, 0.75%; 4Plus and Shariah, 0.95%.

Investment choice

7 ready-made portfolios.

Why We Picked It

Pension Bee offers a choice of seven ready-made managed portfolios: Tracker, Tailored, Climate (aimed at environmental, social and governance, or ESG,investors), 4Plus (aiming for a return of 4% above the cash interest rate), Shariah, Preserve (short-term investments), and Pre-annuity (bond-based investments).

No minimum contribution. At retirement, customers have the option of a cash lump sum, buying an annuity, or flexible income drawdown.

Overall, a low-cost option that scores well on customer reviews featuring ready-made portfolios.

Pros & Cons

Competitive fees
Variety of ready-made portfolios
Lifestyle profiling available
No minimum contribution
Available directly

Limited to ready-made portfolios

Typical fees

Portfolio of £10,000: £50 per annum
Portfolio of £50,000: £250 per annum
Portfolio of £200,000: £750 per annum

Bestinvest (SIPP)

Platform fee

Ready-made portfolios and US shares, 0.2% (up to £500,000), 0.1% (£500,001 to £1 million), no charge (£1 million+). Other investments, 0.4% (up to £250,000), 0.2% (£250,001 to £500,000), 0.1% (£500,001 to £1 million), no charge (£1 million+). Minimum £120 pa.

Fund fee

1.22% to 1.5% (Expert), 0.30% to 0.37% (Smart), 0.78% (Direct).

Investment choice

19 ready-made managed portfolios, more than 3,600 shares, funds, investment trusts.

Platform fee

Fund fee

1.22% to 1.5% (Expert), 0.30% to 0.37% (Smart), 0.78% (Direct).

Investment choice

19 ready-made managed portfolios, more than 3,600 shares, funds, investment trusts.

Why We Picked It

Bestinvest is run by wealth management firm Evelyn Partners.

Customers can choose from 20 managed, ready-made portfolios split across growth, income and ESG options. Bestinvest offers a ‘Best Funds’ list comprising more than 100 ‘best in class’ funds, ETFs, and investment trusts.

There is also a fuller fund range including over 1,400 UK and US shares, 1,600 funds, 390 ETFs, and 270 investment trusts. Investors can also choose from a range of Vanguard LifeStrategy and TargetRetirement funds.

Minimum contributions: £500 (lump sum), or £50pm.

Bestinvest is a good all-rounder, with low fees for some ready-made portfolios and there is also a good spread of investment choice.

Pros & Cons

One of lower platform fees for ready-made portfolios
Good choice of funds
Low minimum for lump sum contributions
Available directly

HIgh fund fees for some portfolios
No lifestyle profiling

Typical fees

Portfolio of £10,000: £50 per annum
Portfolio of £50,000: £250 per annum
Portfolio of £200,000: £1,000 per annum

AJ Bell (SIPP)

Platform fee

Funds, 0.25% (up to £250,000), 0.1% (£250,001 and £500,000), no charge (£500,000+). Shares, 0.25%, capped at £10pm.

Fund fee

0.31% to 0.45% (AJ Bell funds). 0.50% to 0.86% (ready-made portfolios).

Investment choice

9 AJ Bell managed funds, 6 ready-made portfolios, over 15,700 shares, funds, investment trusts.

Platform fee

Funds, 0.25% (up to £250,000), 0.1% (£250,001 and £500,000), no charge (£500,000+). Shares, 0.25%, capped at £10pm.

Fund fee

0.31% to 0.45% (AJ Bell funds). 0.50% to 0.86% (ready-made portfolios).

Investment choice

9 AJ Bell managed funds, 6 ready-made portfolios, over 15,700 shares, funds, investment trusts.

Why We Picked It

AJ Bell is a publicly listed investment platform.

Customers can choose from nine AJ Bell ready-made managed portfolios and six non-managed portfolios split across income, growth and ESG options.

The service offers a ‘Favourite Funds’ list comprising around 80 ‘best in class’ actively and passively managed investments.

The full range extends to 8,000+ shares, 3,700 funds, 3,400 exchange-traded funds and 450 investment trusts.

Minimum contributions: lump sum, £500 or £25pm.

Overall, this a good all-rounder for individuals requiring a wide choice of investments, at competitive costs with good customer review scores.

Pros & Cons

One of lower platform fees
Wide choice of funds
Low minimum for monthly investing
Available directly

No lifestyle profiling

Typical fees

Portfolio of £10,000: £65 per annum
Portfolio of £50,000: £375 per annum
Portfolio of £200,000: £1,500 per annum

Canada Life (SIPP)

Platform fee

0.4% (up to £75,000), 0.3% (£75,001 to £150,000), 0.3% (£150,001 to £1 million), 0.2% (£1 million+).

Fund fee

0.16% to 0.61% (Core range), 0.57% (Income), 0.38% (Property), 0.32% to 1.84% (Governed range).

Investment choice

38 ready-made portfolios, 2,400+ funds.

Platform fee

0.4% (up to £75,000), 0.3% (£75,001 to £150,000), 0.3% (£150,001 to £1 million), 0.2% (£1 million+).

Fund fee

0.16% to 0.61% (Core range), 0.57% (Income), 0.38% (Property), 0.32% to 1.84% (Governed range).

Investment choice

38 ready-made portfolios, 2,400+ funds.

Why We Picked It

Customers can choose from 38 ready-made portfolios from the company’s Core range, split across five risk levels as well as active and passively managed options.

The Governed range comprises 120 ‘best in class’ funds.

The Extended range includes over 2,400 funds. There is also a choice of Vanguard funds, including the LifeStrategy range.

Minimum contribution of £20,000 to open an account (either as a transfer in, or as a lump sum).

At retirement, customers have the option of a cash lump sum, buying an annuity or flexible income drawdown.

This service might appeal to pension clients who want to combine ready-made and self-invested portfolios at a competitive price.

Pros & Cons

Low fund charges on standard portfolios
Low fund charge on income portfolio
Wide choice of funds

High minimum initial contribution
Only available through financial adviser
No lifestyle profiling

Typical fees

Portfolio of £10,000: £56 per annum
Portfolio of £50,000: £280 per annum
Portfolio of £200,000: £945 per annum

Scottish Widows (personal pension)

Platform fee

0.9% (up to £29,999), 0.4% (£30,000 – £49,999), 0.3% (£50,000 – £249,999), 0.25% (£250,000 – £499,999), 0.2% (£500,000 – £999,999), 0.1% (£1 million+).

Fund fee

Standard, 0.1% – 0.2% (annual management charge), Premier: 0.4% – 1.3%.

Investment choice

18 ready-made portfolios.

Platform fee

0.9% (up to £29,999), 0.4% (£30,000 – £49,999), 0.3% (£50,000 – £249,999), 0.25% (£250,000 – £499,999), 0.2% (£500,000 – £999,999), 0.1% (£1 million+).

Fund fee

Standard, 0.1% – 0.2% (annual management charge), Premier: 0.4% – 1.3%.

Investment choice

18 ready-made portfolios.

Why We Picked It

Scottish Widows is part of the Lloyds Banking Group and has over six million customers.

The platform fee is non-tiered, which means customers pay the lower rate on the whole of their portfolio.

Investors have nine ready-made managed portfolios under the service’s Governed Investment Strategy to choose from, split across three risk levels and three outcome types (annuity, encashment, or flexible access).

The above portfolios are invested index funds. In addition, nine actively managed funds and a wider choice of assets is available through nine Premier managed portfolios, although these incur an additional annual management fee.

Minimum contributions: £2,400 (initial annual lump sum), thereafter £600 annual lump sum, or £200 initial monthly payment and £50pm subsequently.

Depending on circumstances, customers may require financial advice.

At retirement, customers have the option of a cash lump sum, annuity purchase, or flexible income drawdown.

A low-cost offering for individuals requiring a portfolio which includes lifestyle profiling.

Pros & Cons

Non-tiered platform fee
Low fund charges on standard portfolios
Lifestyle profiling available

High platform fee for low value portfolios
High minimum for lump-sum investments
Limited to ready-made portfolios
May need financial advice

Typical fees

Portfolio of £10,000: £100 per annum
Portfolio of £50,000: £200 per annum
Portfolio of £200,000: £800 per annum

Fidelity (SIPP)

Platform fee

0.35% or £90 up to £25,000 depending on investing frequency. 0.35% (£25,000 – £249,999), 0.2% (£250,000 – £999,999), no additional charge at £1 million+.

Fund fee

Ongoing fund charge 0.2% – 1.15% (ready-made growth portfolios), 0.4% – 0.97% (ready-made income portfolios).

Investment choice

10 ready-made portfolios and 6,000+ shares, funds, ETFs and investment trusts.

Platform fee

0.35% or £90 up to £25,000 depending on investing frequency. 0.35% (£25,000 – £249,999), 0.2% (£250,000 – £999,999), no additional charge at £1 million+.

Fund fee

Ongoing fund charge 0.2% – 1.15% (ready-made growth portfolios), 0.4% – 0.97% (ready-made income portfolios).

Investment choice

10 ready-made portfolios and 6,000+ shares, funds, ETFs and investment trusts.

Why We Picked It

Fidelity is a global investment company with nearly two million clients in the UK.

Customers can choose from 10 ready-made managed funds, with growth and income-focused investments across different risk levels at differing costs.

The Select 50 is a shortlist of active and passive funds from a range of different asset classes, fund managers, and regions.

Customers can also choose from over 6,000 shares, funds, ETFs, and investment trusts offered by various fund management names including Fidelity itself as well as BlackRock, Baillie Gifford, etc.

Minimum lump sum contribution of £800 or £20 (monthly).

At retirement, customers can take a cash lump sum, buy an annuity or carry out flexible income drawdown.

Overall, a good range of investments, although lower fees can probably be found elsewhere on lower value portfolios.

Pros & Cons

Non-tiered platform fee
Low fund charge on income portfolio
Wide choice of funds
Low minimum for monthly investing
Available directly

High platform fee for smaller value portfolios
No lifestyle profiling

Typical fees

Portfolio of £10,000: £110 per annum
Portfolio of £50,000: £275 per annum
Portfolio of £200,000: £1,100 per annum

Legal & General (personal pension)

Platform fee

0.25%

Fund fee (OCF)

0.31% (OCF)

Choice of investments

5 ready-made portfolios

Platform fee

0.25%

Fund fee (OCF)

0.31% (OCF)

Choice of investments

5 ready-made portfolios

Why We Picked It

Legal & General, also known as L&G, is one of the largest insurance and financial services companies in the UK, with over 10 million customers.

It offers one of the lowest platform fees, which is not tiered by portfolio value, and a competitive annual management fee for its portfolios.

Customers have the choice of five ready-made managed index-based funds, categorised by risk profile.

Minimum contributions: £100 (lump-sum) and £1 thereafter.

At retirement, customers have the options of a cash lump sum, buying an annuity or flexible income drawdown.

Overall, L&G may appeal to customers looking for a simple personal pension, together with a low platform fee for smaller-value portfolios.

Pros & Cons

One of lowest platform fees
Fund charges same for all risk profiles
Available directly
Low minimum contribution

Index fund only portfolios
Limited to ready-made portfolios
No lifestyle profiling
No income-focused portfolio

Typical fees

Portfolio of £10,000: £56 per annum
Portfolio of £50,000: £280 per annum
Portfolio of £200,000: £1,120 per annum

Aviva (SIPP)

Platform fee

0.4% (up to £50,000), 0.35% (£50,001 – £250,0000, 0.25% (£250,001 – £500,000), no charge thereafter. Platform fee for shares and funds capped at £120pa.

Fund fee

0.35% (growth), 0.73% (Income).

Investment choice

5 ready-made portfolios, plus 5,000 funds and shares.

Platform fee

0.4% (up to £50,000), 0.35% (£50,001 – £250,0000, 0.25% (£250,001 – £500,000), no charge thereafter. Platform fee for shares and funds capped at £120pa.

Fund fee

0.35% (growth), 0.73% (Income).

Investment choice

5 ready-made portfolios, plus 5,000 funds and shares.

Why We Picked It

Aviva is one of the UK’s largest insurance and financial groups with more than 18 million customers.

Customers can choose from five ready-made managed portfolios, comprising four growth (split by risk) and one income. The growth portfolios tend to hold a combination of active and passive funds. The income option invests mainly in shares and bonds.

Aviva offers around 5,000 active and passive funds from a range of providers including BlackRock, Fidelity and Invesco.

There is also a choice of Vanguard LifeStrategy and Target Retirement funds.

Customers can also choose from a shortlist of around 80 active, passive and ESG funds chosen by Aviva.

Platform fees are calculated across the total balance of all accounts held with the company (including ISA and other holdings). The annual platform fee for shares and funds is capped at £120.

There is a minimum contribution of £5,000 (lump sum), £25 (monthly), or a combination of £1,000 lump sum followed by £25pm.

At retirement, customers have the option of a cash lump sum, buying an annuity, or carrying out flexible income drawdown.

Aviva provides a good all-round offering with a wide choice of investments and competitive fees.

Pros & Cons

Platform fee across all accounts
Choice of ready-made or self-invested portfolio
Good choice of funds
Lifestyle profiling available
Available directly

High annual management fee on income fund
High minimum for lump-sum payments

Typical fees

Portfolio of £10,000: £75 per annum
Portfolio of £50,000: £350 per annum
Portfolio of £200,000: £1,200 per annum

Hargreaves Lansdown (SIPP)

Platform fee

Funds: 0.45% (up to £250,000), 0.25% (£250,000 to £1 million), 0.10% (£1 million to £2 million), no charge (£2 million plus). Shares: 0.45% (capped at £200 per year). (Tiered).

Fund fee (OCF)

0.88% to 0.98%

Choice of investments

4 ready-made portfolios, 70 wealth shortlist funds and over 13,000 shares, funds, investment trusts and ETFs

Platform fee

Funds: 0.45% (up to £250,000), 0.25% (£250,000 to £1 million), 0.10% (£1 million to £2 million), no charge (£2 million plus). Shares: 0.45% (capped at £200 per year). (Tiered).

Fund fee (OCF)

0.88% to 0.98%

Choice of investments

4 ready-made portfolios, 70 wealth shortlist funds and over 13,000 shares, funds, investment trusts and ETFs

Why We Picked It

Hargreaves Lansdown (HL) is a FTSE 100 company with over 1.7 million clients. Other accounts include a general investment account, ISA, Lifetime ISA and Junior ISA.

Customers have the choice of four HL ready-made managed portfolios split by risk from cautious to adventurous. In addition, the Wealth Shortlist comprises around 70 ‘best in class’ active and passive funds.

Alternatively, the full range includes over 8,500 UK, US, Canadian and European shares, 3,000 funds, 1,400 ETFs and 400 investment trusts from a wide range of fund managers. Active fund managers include Baillie Gifford, BlackRock, Fidelity, Invesco & M&G. There is also the choice of Vanguard LifeStrategy and Target Retirement funds.

Minimum contributions: £100 (lump-sum) or £25 (monthly payment).

At retirement, customers have the option of a cash lump sum, buying an annuity or flexible income drawdown.

Overall, HL is likely to appeal to individual willing to pay a higher fee for a premium service, with excellent support available by telpehone.

Pros & Cons

Platform fee for shares capped
Wide choice of funds
Low minimum investment
Available directly

One of highest platform fees
High fund fee for model portfolios

Typical fees

Portfolio of £10,000: £133 per annum
Portfolio of £50,000: £665 per annum
Portfolio of £200,000: £2,660 per annum

Methodology

To come up with our list of best pension providers for self-employed workers, we applied three main criteria. Our focus was on whether providers:

offer personal pension products
charge competitive platform and fund fees
offer a range of ready-made portfolios.

We also considered other features such as the range of investments on offer, including third-party funds, minimum contributions, and whether products were available directly, or only through a financial advisor.

We also looked at customer reviews and checked whether the provider was authorised by the Financial Conduct Authority (FCA), the financial watchdog. Using FCA data, we also reviewed customer complaints levels.

Combining the above with editorial judgment, we arrived at our Forbes Advisor star ratings.

What assumptions did we use?

We calculated overall fees based on the following assumptions:

portfolio value: £10,000, £50,000 and £200,000
portfolio split: 100% invested in ready-made portfolios
fund fees: based on the minimum ongoing charges figure (OCF) across the ready-made portfolios (see FAQs below for further details).

What is a personal pension?

A personal pension is one that individuals arrange themselves, rather than through an employer, in order to build up a pot of money for retirement.

They’re also known as ‘defined contribution’ pensions, which differ from some employer-run ‘defined benefit’ schemes, where the payment in retirement is directly linked to the individual’s salary at retirement, regardless of contributions.

With the defined contribution approach, the value of the portfolio at retirement determines the size of the pension pot.

A self-invested personal pension (SIPP) is a type of personal pension that provides more choice over the types of investments, rather than a set of pre-selected ready-made portfolios.

A stakeholder pension is another type of personal pension that meets certain criteria, including low minimum contributions, the flexibility to stop contributions, capped fees and a default investment fund. The personal pensions listed above do not qualify as stakeholder pensions.

What are the benefits of a personal pension?

any UK resident under 75 can open one, irrespective of whether they also have a workplace or other private pension scheme
they can be used to consolidate other pensions in one place
individuals receive tax relief on their pension contributions, usually at least 20%, and up to the highest rate of income tax paid (subject to certain limits)
individuals may have the flexibility to choose their own investments, such as shares and funds, or the option of a set of pre-selected investments
investments held in personal pensions are free from income and capital gains tax (while they remain within the pension)
up to 25% of the pension can usually be withdrawn as a tax-free lump sum
investors can often hold their personal pension with the same provider as their ISA and general investment account, which may make their whole investment product suite easier to manage.

What are the drawbacks of a personal pension?

fees are charged on personal pensions, which can vary significantly between providers.
not all individuals have the financial expertise to choose their own investments and, as with other investments, they may lose some, or all, of their money.
money can’t be accessed until 55 (rising to 57 by 2028), unlike other forms of tax-efficient investments such as an Individual Savings Account (ISA).
after taking the 25% tax-free lump sum, individuals will typically have to pay income tax on withdrawals from the personal pension (above their personal allowance).
the lifetime allowance may be reinstated in the future, meaning that individuals are taxed on any excess above this amount.

Frequently Asked Questions (FAQs)

Are there other options for self-employed workers?

In addition to personal pensions, there are other ways for self-employed workers to invest for their retirement, as follows:

NEST

NEST (National Employment Savings Trust) is a workplace pension scheme created by the government. While NEST is primarily for employees, in most cases individuals can join NEST if they’re self-employed or the sole director of a company that doesn’t employ anyone else.

The vast majority of NEST members opt for the Retirement Date Funds which move investments into lower-risk assets as the date of retirement approaches.

Alternatively, members can pick from one of five funds, including low and high growth funds and ethical and sharia funds. These invest directly in the underlying assets, such as shares in individual companies, rather than being ‘funds of funds’.

Lifetime ISA

Another option is to take out a Lifetime ISA (LISA). Although more typically used to save for a house deposit, it can also be used to save for retirement. It’s open to individuals aged between 18 and 39 who can contribute £4,000 every year into a LISA up to the age of 50.

Individuals will receive a 25% government bonus on LISA contributions if the money is used to buy a home or supplement retirement income (provided it’s not withdrawn until you’re 60).

They’re also free from capital gains and income tax but LISA contributions will come out of the £20,000 overall annual ISA allowance.

What’s the average pension contribution in the UK?

Overall, individual contributions to personal pensions have continued to rise, with £12 billion of contributions made to personal pensions in the most recent period:

Source: HMRC statistics

The average pension contribution has also risen significantly and is currently £1,700 per year, as shown in the chart below:

Source: HM Revenue & Customs statistics

What’s the average size of pension pots?

As shown in the table below, the average value of a pension pot in the UK is £32,700:

AGE	AVERAGE PENSION POT
16-24	£2,700
25-34	£9,300
35-44	£30,000
45-54	£75,500
55-64	£107,300
65+	£81,100
All	£32,700

Source: The Office for National Statistics (ONS)

Unsurprisingly, the highest value pensions are in the age group nearing retirement, with an average pension pot of over £107,000 for 55-64 years olds.

However, young adults have saved almost £3,000, on average, rising to over £9,000 for 25-34 year olds.

In terms of the potential income in retirement, a £100,000 pension pot could currently buy an annual income of around £7,500 at age 65 (based on a single life level annuity with no guarantee).

How much can be paid into a personal pension each year?

Individuals can pay 100% of their earnings into a personal pension each tax year, subject to the annual allowance (£60,000 in the 2024/25 tax year).

There is a tapering of the annual allowance for people earning over £200,000 a year. The annual allowance is reduced by £1 for every £2 of ‘adjusted income’ (which includes bonuses) above £260,000, subject to a minimum allowance of £10,000.

However, individuals also have the option to carry forward unused annual allowances from the last three tax years, subject to certain conditions. This can allow them to receive tax relief on pension contributions that exceed the annual allowance.

Tax-relief will be received on pension contributions, depending on the highest rate of income tax paid by an individual:

Basic-rate (20%) tax-payers would need to contribute £8,000 of net income to make an overall contribution of £10,000 to their pension, with the government topping up their contribution by £2,000.
Higher-rate (40%) tax-payers would only need to contribute £6,000, with the government topping-up their contribution by £4,000.
Additional-rate (45%) tax-payers would need to contribute £5,500, with the government contributing £4,500.

Basic-rate tax relief is claimed by the pension provider and automatically added to the pension. Higher-rate tax-payers will have to claim the additional tax-relief through their annual return or by contacting their tax office.

Non tax-payers are also able to receive basic-rate tax-relief on personal pension contributions. They can make pension contributions of up to £2,880 a year, which the government tops up to £3,600. Children can benefit from the same tax-relief on contributions into Junior SIPPs.

Who offers personal pensions?

A number of the mainstream investment platforms offer self-invested personal pensions (SIPPs), including Hargreaves Lansdown, AJ Bell, interactive investor and Bestinvest.

The large insurance companies, such as Legal & General, Pru, Standard Life and Aegon also offer personal pensions. Some only offer ready-made portfolios while others, such as Aviva and Canada Life, also offer a range of third party funds.

Another option is robo-adviser platforms, such as Nutmeg and Wealthify, which we cover in more detail in our pick of the best robo-adviser platforms. Robo-advisers choose an investment portfolio for individuals, based on their financial goals and attitude to risk.

What fees are charged on personal pensions?

There are various types of fees charged on personal pensions:

Platform fee

This is an annual fee charged for holding investments in a personal pension. Most providers charge a percentage, typically 0.2% to 0.4%, of the value of a portfolio, although this may be capped at a maximum amount per year.

It’s also worth looking at the types of investments as some providers charge a lower platform fee for holding shares than funds.

There are two types of percentage-based platform fees:

Tiered fee: this is the most usual type of platform fee, whereby individuals pay different fees on different ‘slices’ or tiers of a portfolio. For example, for a portfolio worth £400,000, individuals might pay 0.45% on the first £250,000, then 0.25% on the next £150,000.
Non-tiered fee: some of the providers charge a non-tiered fee, whereby the same fee is paid across the whole portfolio. For example, with a portfolio of £400,000, 0.2% is applied to the whole £400,000.

Fund fee

This is charged by the manager of the ready-made portfolios, funds, investment trusts and exchange-traded funds. It typically varies from around 0.1% to 0.3% for passively-managed portfolios to 0.5% to 1.0% for actively-managed portfolios.

This fee may be shown in two ways:

Ongoing charges figure (OCF): all the costs of running a fund, including the annual management charge, administrative costs and transaction charges from buying and selling investments.
Annual management charge (AMC): the management fee charged for running the fund.
Trading fee: this is a flat fee charged by SIPP providers when individuals buy or sell investments. Some SIPP providers do not charge for trading shares, while others charge a fee of £5 to £10 per share trade. Most providers do not charge for buying or selling funds.

Other fees

Some of the providers charge other fees, including fees for transferring pensions between providers and fees for trading by telephone.

For individuals who buy or sell shares denominated in a currency other than pounds sterling, the providers may charge a foreign exchange fee. This is also referred to as a foreign currency conversion fee and typically varies from 0.5% to 1.5%. Some providers also charge a higher trading fee for overseas shares.

Why do fees matter?

While the difference between fees may look insignificant, it can add up to a considerable amount of money over the life of a pension.

Let’s take a look at an example: an individual transfers a lump-sum of £100,000 into a personal pension, and contributes a further £5,000 per year for 25 years. The pension pot increases in value by 8% each year.

If the individual pays their provider an annual fee of 0.4%, their pension pot will be worth £961,000 at the end of the period. However, if they paid an annual fee of 0.8% or 1.2%, their pension pot would be worth £81,000 or £155,000 less, respectively.

How can a personal pension be opened?

Most of the SIPPs offered by the mainstream providers can be opened online or over the phone. However, some of the personal pension providers on our list require pensions to be opened via an independent financial advisor.

Pensions are a complex area and self-employed workers should consider consulting a financial advisor before opening a product of this sort. Bear in mind that advisors will charge a fee for their services, which they should disclose upfront.

What’s a ‘defined contribution’ scheme?

A personal pension is a type of ‘defined contribution’ scheme, meaning that individuals build up a pot of money which they can choose to take in various ways on retirement.

This differs from a ‘defined benefit’ or ‘final salary’ scheme which pays out an annual income on retirement. Many of these schemes have been phased out by employers over the last decade.

Can other pensions be transferred into personal pensions?

Other pensions can typically be transferred into personal pensions (as with ISAs). However, individuals should check with their existing provider that they will not be losing any valuable benefits or guarantees and the cost of any exit fees.

Additional rules apply for the transfer of certain ‘final salary’ or ‘defined benefit’ schemes into a personal pension, whereby advice must first be sought from a qualified financial advisor.

However, pensions are a complex area and it’s worth seeking financial advice before deciding to make any transfers into a personal pension.

How does lifestyle profiling work?

Lifestyle profiling is a way of rebalancing a pension depending on the age until retirement. In the early years, it typically invests in higher-risk, growth funds before moving into lower-risk funds and assets, such as bonds, as retirement approaches.

Lifestyle profiling can also be set according to the options taken on retirement. For example, individuals wanting to take a cash lump-sum on retirement, or buy an annuity, would be invested in different types of funds to those leaving their pension invested on retirement.

Some of our selected providers offer lifestyle profiling, such as the Vanguard Target Retirement funds. Alternatively, individuals may seek to move their money into lower-risk portfolios and investments as they move towards retirement.

What happens to personal pensions on retirement?

There are different options available on retirement, which can be ‘mixed and matched’. Individuals can take up to 25% of their personal pension as a tax-free lump-sum.

In terms of the balance remaining, individuals can typically choose to leave their pension invested and take lump-sum payments.

Or they can draw-down an income (by withdrawing some of the returns made on investments, or by selling a proportion of their investments). This is known as ‘flexible retirement’ income.

Another option is to use some, or all, of the remaining funds to buy an annuity, which pays a regular income for the rest of an individual’s life.

The ‘pension freedoms’ announced in 2015 had a significant impact on the take-up of annuities. Previously, individuals had to purchase an annuity with the remaining money left in their pension after taking a cash-free lump sum.

This led to a significant fall in annuities and rise in the popularity of flexible drawdown, as shown in the chart below:

Source: Institute for Fiscal Studies (IFS)

Is inheritance tax paid on personal pensions?

On an individual’s death, a personal pension can typically be passed to their beneficiaries (usually a spouse or children) without paying inheritance tax.

If the individual dies before 75, withdrawals by the beneficiaries will usually be tax-free. However, if they are 75 or older, any withdrawals will be taxed as their income.

How to choose the right personal pension

Although there is a wide choice of personal pension providers, it’s worth taking the time to review the fees charged, along with the range of investments.

As discussed above, individuals looking for help with managing their pension portfolio might want to consider a robo-advisor, or one of the ready-made portfolios offered by the mainstream providers.

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Jo Groves Former Editor

Jo is a former writer at Forbes Advisor. Having worked in investment banking for over 20 years, she has turned her skills and experience to writing about all areas of personal finance. Her aim is to help people develop the confidence and knowledge to take control of their own finance