How does a workplace pension work?
A workplace pension is a great way to put money aside for the future. In this kind of pension, you and your employer pay into a savings pot every month. This is the money you’ll use when you retire and aren’t working anymore.
You’ll generally automatically join a workplace pension just after starting your new job unless you choose to opt out.
You don’t pay income tax on your contributions. This makes it a really valuable way to save for later life because it puts more money in your pocket.
Each employer has its own workplace pension. So when you change jobs you usually start a new savings pot. You can either consolidate these or keep them separate.
There are two main types of pensions:
- Defined Benefit – this promises to pay a pension linked to your salary. The employer promises to make sure it has enough money to do that.
- Defined Contribution – you and your employer pay into your pot. Your pension at retirement depends on how much is paid in and the growth in value. Because this money is invested, it grows over time.
Most employers offer a Defined Contribution pension. The following only applies to this type of pension:
- The money is invested for you until you decide to withdraw it.
- You may be able to choose where your money is invested.
For example you might want to invest in line with what’s important to you, like eco-friendly investments. Or, you could invest based on how you feel about risk. So, how you feel about your money unexpectedly falling in value.
Right now, you can start to access your private pension pot from age 55. This will go up to age 57 from 2028.