Investing your money
Your contributions are invested in a range of different investments which aim to build up a sum of money.
This can be used to provide you with an income when you start taking your retirement benefits.
Contributions you make to a pension are usually pooled with those of other people, which are then invested. So you gain access to a much broader range of investments than you might otherwise have been able to afford.
These investments are generally known as funds; most pension providers offer a selection of funds that invest in different types of assets - such as company shares and commercial property.
These funds are managed by professionals who do this work for a living, supported by far more resources than most individuals could ever draw on.
The objective of most funds is to invest in assets that will increase in value over time, although this cannot be guaranteed as the value of certain assets can go down as well as up. This means that you might not get back the value of your original investment.
Different funds have different levels of risk. Some funds may offer greater potential for growth but come with a greater level of risk and may drop in value. Other funds may be safer and are less likely to drop in value but are less likely to provide significant increases in value.
The level of risk and potential return will depend primarily on the underlying assets that make up the fund and the stance taken by the fund manager.