Watch this animation to see who pays money into your pension, how BT tops it up - and what your options are when you retire.
Please note, this is an example only to help you understand how pensions normally work. The information provided may not apply to your own personal circumstances.
Let's take a closer look at how your pension works. First of all, who pays in?
Your pension is money for you for the future. That means it's up to you to pay in what you can and make sure you're on track. There may be some minimums set by the Government or your employer.
Don't worry, you won't have to go it alone. You may have support from your employer. Your employer's payments will depend on the conditions they offer. For example they could pay a fixed amount or may match your payments up to a certain amount. It's worth checking as by paying just a little bit more, you could get more from your employer.
Pensions are a tax-efficient way to save. Depending on your income range and type of pension, you could receive valuable tax benefits from the Government.
But what is happening to your money?
Your money is held in investments within your pension pot with the aim to make it grow as much as possible over the long term for when you retire. However, investments can go down as well as up in value and there's always a chance that you will get back less than what was paid in.
You can choose where your money is invested and the risk you're willing to take. For example, if you're far off from retirement you may choose to take more risk than someone closer to retirement. Investing early could give your money more time to grow.
What happens when I retire?
Currently, when you turn age 55, you can choose how to access your pension savings. The way you take your pension will depend on what matters to you and the kind of lifestyle you want. Remember that age 55 for taking your saving may be changed in the future.
When you retire, you can normally take up to 25% of your pension savings as tax-free cash. What you use it for is up to you. Keep in mind that tax rules can change. The value of tax relief is dependent on your individual circumstances.
What's important though is to make sure you have enough money to keep you going for the long term. You can use the rest of your pension pot to create an income for yourself or take it all as cash which would be taxed.
Some pensions let you take a flexible income, which means your pension savings stay invested, but you can take out money to meet your changing needs. How long your pension pot lasts depends on how much you take out - and how your investments perform. Remember as with all investments there is risk involved and you could run out of money.
If you don't like uncertainty and prefer the reassurance of an income that will last for the rest of your life, you can use some or your entire pension pot to buy a guaranteed income for life. This is called an annuity.
What happens if I die?
If the unthinkable happens, any money remaining in your pension pot can normally be passed on. Please ensure you've updated your beneficiaries, which you can now do online.
To sum up...
- You and your employer and the government can all pay into your pension
- Money in your pension pot is invested so it has the potential to grow, but there are no guarantees
There are different ways to access your pension pot when you start to take your benefits.
Investments can go down as well as up and may be worth less than what was paid in. Laws and tax rules may change in the future. The information here is based on our understanding in April 2021. Your own circumstances and where you live in the UK also have an impact on tax treatment.