Pension alternatives: what are my options?

Figuring out the best way to save for retirement can be difficult. There are lots of options available, but there’s no one-size-fits-all. 

Here is everything you need to know about the best pension alternatives and saving for your retirement.

What is the state pension? 

A state pension is a type of benefit that the government pays to help you cope financially when you retire.

The total amount you’re entitled to will depend on how many qualifying years of national insurance (NI) contributions you’ve built up. 

If you’ve racked up 35 qualifying years, you could receive the maximum amount of £221.20 per week (in the 2024/25 tax year).

Who qualifies for the state pension? 

Once you start working and earn above £242 a week from one employer or are self-employed and earn a profit of over £12,570 a year, you’ll begin to make NI contributions (these are treated as paid for profits of between £6,725 and £12,570).

You will also need a NI number before you begin making contributions.

If you’re out of work or don’t earn enough to qualify, you can make voluntary NI contributions to make sure you’re eligible for a state pension. You’ll also accrue qualifying years if you claim certain benefits, such as if you’re unemployed or disabled.

There are other alternatives to a pension, which can be used in place of or alongside any government benefits.  

What is a workplace pension scheme? 

A workplace pension is a private alternative to a state pension.

All employers must offer to enrol employees aged 22 or over who earn more than £10,000 a year onto a workplace pension scheme.

You can decline, but you’ll miss out on a tax-efficient way to build a pension pot.

Once you’re enrolled, both you and your employer will make contributions, building up the funds throughout your years of service. You can carry your workplace pensions between jobs, so you won’t lose your collective contributions.

Workplace pensions are an important part of planning for your future retirement.

The state pension alone is rarely enough to fund your retirement.

The maximum is just £11,502.40 a year – less than half of what a full-time worker (aged 21 and over) would earn on the minimum legal wage of £11.44, which equates to £23,795.20 a year. 

What happens to my workplace pension when I move jobs? 

Due to auto-enrolment, you should be enrolled for a workplace pension when you change jobs if you’re eligible.

Your existing pension may be transferred if the pension provider is the same - if it isn’t, you can still access it.

Your employers, both new and old, will be able to offer guidance if you need to take any action.

It is always a good idea to speak to a financial adviser to avoid making any mistakes.

Who doesn’t qualify for a pension? 

Not everyone qualifies for a workplace or state pension, so it’s always a good idea to start thinking about your pension in advance. 

For example, unlike employees, freelancers are not usually included in workplace pension schemes. 

Or you may simply choose not to be part of your workplace pension scheme, saving the funds you would’ve contributed elsewhere instead.  

There are a few different retirement saving alternatives and options if a workplace pension scheme isn’t available to you: 

• Individual savings accounts (ISAs)
• Self-Invested personal pension (SIPP)
• Investments
• Assets that can be liquidated into funds, such as property 

What is an ISA? 

One of the most common ways for people to save for their future is an Individual Savings Account (ISA).

This is a personal saving pot, and many people use them to save for later life or to buy a house. 

There are different ISAs, such as cash ISAs, stocks and shares ISAs, innovative finance ISAs, and lifetime ISAs. 

If you opt for the latter, you won’t be able to withdraw funds from your ISA without incurring a withdrawal fee until you buy a home, are aged 60 or over, or are terminally ill.

A lifetime ISA is also available in the form of cash or stocks & shares.

Investing in an ISA is a flexible way to save for your future. 

You can save up to £20,000 per tax year across most ISAs or one single product, and you won’t have to pay tax on interest, income, or capital gains from assets held within them.

If you’re willing to tie your money up for a set period, you’ll generally be able to access better interest rates. But check with a financial adviser on how best to use your ISAs.

What is a self-invested personal pension (SIPP)? 

A self-invested personal pension (SIPP) gives you more control over how your pension pot is invested or grows interest.

The right option for you will depend on a number of factors, including your appetite for risk, the kinds of returns you’re looking for, how long you have until you retire and whether you’re willing to lock the funds away.

If you’re not sure which kind of SIPP product to choose, it’s best to seek professional advice before setting one up.   

How do you invest towards your pension? 

For those who feel more comfortable with risk, another traditional pension alternative is to invest in stocks and shares, property or other asset classes to save for retirement. 

There are lots of different investments that an individual could make, such as a buy-to-let property or investing in a commodity like gold.

Investing in things like stocks and shares and other complex assets isn’t for everyone, but they can deliver high returns. 

Comparatively, a property investment can offer both a regular income stream and capital growth.

However, there will also be continuous costs to maintaining a property, which can eat into the income potential. 

Can I manage my pension digitally? 

Technology has changed how many live and work, and pensions are not exempt.

If you’d like to manage your pension digitally and make investments and savings from the comfort of your sofa, many companies offer this via their apps.

Get expert financial advice

In planning for your retirement, understanding the variety of pension options available is crucial.

Whether you qualify for the state pension, participate in a workplace pension scheme, or explore alternative savings vehicles like ISAs or SIPPs, it’s important to choose the right approach based on your circumstances.

By exploring these options, you can take control of your financial future and ensure you have the resources you need for a comfortable retirement.

Let Unbiased quickly match you with a financial adviser for expert financial advice on selecting the best pension options and building a retirement plan tailored to your needs. 

If you found this article helpful, you might also find our guide on pensions vs ISAs informative, too.