If you’ve just started saving into a pension, there’s a lot to get your head around. We can help you understand how your pension works and the benefits of saving into a pension.
Understanding your pension
In a nutshell, a pension is a way of saving for your retirement. The money that you are saving into it, is invested to help it grow so that hopefully by the time you're eligible to access some of it (currently 55, rising to 57 in 2028), it can help you pay for the cost of retirement.
An important thing to understand about pensions is that unlike other types of savings plans, they benefit from tax relief. This means that, if you're a basic rate taxpayer, for every 80 pence you put into a pension, the government will top it up to £1. You can find out more about this in our guide to understanding tax relief.
If you're saving into a workplace pension, you might be paying into your plan using salary exchange. This means you exchange part of your gross salary for a pension contribution, and by doing this, you and your employer pay less national insurance contributions. You can learn more about this in our guide to salary exchange.
Saving into your workplace pension
It could be tempting to stop paying into your workplace pension, especially when you have to make difficult choices about your finances. But there are a number of important benefits you could lose if you choose to reduce your pension contributions, or opt out of your workplace pension scheme
We understand that its a difficult time at the minute, and you can stop your payments if you need to and then restart them later on. But it's important to bear in mind that doing this could mean that there is less money in your pension pot when you retire.
So where do your pension savings go?
When your pension money leaves your pay, it doesn’t just sit in an account somewhere – it's carefully invested. Take a look at the video below to find out what happens to your pension money after it leaves your pay packet.
Video Transcript
Have you ever wondered what happens to your pension money when it leaves your pay packet?
It doesn’t just sit quietly in a pot somewhere.
It’s used to buy bits of companies, buildings and bonds.
Over time if these grow and do well, your pension does too.
So when you start taking your pension
... you’ll hopefully end up with enough money...
... to pay for the lifestyle you want.
But there’s another part of your pension’s life that you might not know about.
When Royal London invests your pension money in a company,
... you and other Royal London customers own a share in that company...
That means that we can influence how those companies are run on your behalf.
We can encourage them to operate in a fair and responsible way...
... and to look after their employees,
... their communities, and the environment.
So, your pension money doesn’t just work and grow for you.
It also gives you power to help change the world for the better. Who knew?
Paying more into your pension
If you can afford to, you might want to think about increasing your pension contributions or paying in a bit extra to give your pension savings a boost.
If you have a workplace pension, you should speak to your employer about making any changes to your contributions – they’ll tell you what changes you can make and when you can make them.
You can also make a single contribution into your pension at any time. Any single contributions you make will benefit from tax relief, so you’ll get extra help from the government to save for your future.
More about saving into a pension
