Pension tips: Answers to your pension questions

More than three-quarters of employees were members of a UK workplace pension scheme last year – a new record high, official figures reveal.

According to the Office for National Statistics, 77% of employees were in a workplace pension scheme in 2019, the highest membership rate since comparable records started in 1997.

Automatic enrolment into workplace pensions, which started in 2012, has had a huge impact in getting people into the habit of saving for later life. And younger generations appear to have caught the savings bug, with 2019 seeing 80% of 22-29-year-old employees saving into a scheme – a massive leap from 31% when auto-enrolment started.

But while many are now saving for their long-term future, pensions can still be tricky to understand.

Here are some tips from Jamie Jenkins, head of global savings policy at Standard Life, on getting to know your pension better…

What’s the difference between pensions and other savings?

A pension is designed specifically to provide an income in retirement. Money is paid into a pension plan and invested by your pension provider, using your investment instructions, or you can let them make that decision for you. Once you reach your chosen retirement age, you can decide how your money is paid back to you.

A big difference between a pension and other savings products is that you receive some tax back on the money saved into your pension, that would have otherwise gone to the Government.

How much you get when you’re ready to take your pension will depend on how much you save, how your pension investments perform and how long you’ve invested for.

What types of pensions are there?

Starting with your state pension, how much you receive depends on your national insurance record, which you can get an estimate of at

gov.uk/check-state-pension

If you also have a workplace pension, contributions will be taken directly from your salary and put into a pension plan, arranged by your employer. Government contributions are added in the form of tax relief.

Another option is a private or personal pension, where you choose the provider and arrange for your contributions to be paid directly from your bank account.

Why should I keep saving into my workplace pension?

Effectively, you and your employer are putting part of your salary away now, tax-free, with a view to you being able to enjoy more in the future. A good way to look at this is that your workplace pension is essentially deferred pay for your future.

What’s in my pension?

Pension providers usually offer a range of funds where your money can be invested. If you belong to a workplace scheme, and you don’t say how you want your contributions invested, your money will automatically go into a “default” fund set up by the provider. You want your investments to grow, but bear in mind investments can go down in value, as well as up.