We're here to help
We love pensions and the difference they make to people’s lives.
Understanding how your pension works might seem complicated and intimidating. Especially when you consider that any decisions you make now, might affect your income for many years in the future. So it’s natural that you might consider seeking guidance and/or advice to help you make the right decisions.
‘Pension pot’ refers to a type of pension you build up with pension contributions you and/or your employer make. You’ll have one if you have a ‘defined contribution’ pension which includes workplace, personal and stakeholder pension schemes.
Although there are different types of pension schemes available, they all have the same aim – to help you save money and provide you with an income when you’re older.
What type of pension do I have?
- The State Pension
- Defined benefit pensions, and
- Defined contribution pensions
Most people get some State Pension. It’s paid by the government and is a secure income for life which increases by at least the rate of inflation each year.
You build up your entitlement to the State Pension by making National Insurance contributions during your working life.
In some cases you can do this even when you’re not working, such as when you’re bringing up children or claiming certain benefits.
You’re most likely to have a defined benefit (DB) pension if you work in the public sector or for a large company.
This is a salary-related pension which pays out a secure income for life and increases each year.
The pension you get is based on how long you’ve been a part of the scheme and how much you earn.
You might have a final salary type scheme where your pension is based on your pay when you retire or leave the scheme.
Alternatively you might have a career-average pension where your pension is based on the average of your pay while you were a member of the scheme.
With this type of scheme you build up a pension pot which you can draw a retirement income from.
The amount that builds up depends on:
- The level of charges you pay
- How well your investment performs, and
- How much you and your employer (if you are employed) pay into the scheme
- Defined contribution (DC) pensions include workplace, personal and stakeholder pension schemes.
The value of an investment and income from it can go down as well as up.