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Money for Life work in partnership with the Money Advice Service, an independent organisation set up by government. Money AdviceService provides free, unbiased money guidance across the UK to help people make the most of their money.  If you have a question or need help, you can chat to them here.

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How your pension pot makes money for you when you’re not even looking

Your pension pot = free money

Having a pension pot is like paying for a pub meal and getting a four-course feast instead. You pay for a little and you get a lot.

Once you’re earning over about £10k a year, a little bit of your salary automatically goes into your pension pot. Your employer chips in with a bit more money, and the government tops it up too. So, the amount of money added to your pension every month ends up being a lot more than you put in.

Unlike most forms of savings, it’s locked away safely until you’re 55. It’s a pot of money for the future.

Here’s a very rough example based on a standard workplace pension in 2019:

 What you earn every year  How much of your salary might go into your pension pot every month The total that might actually go into your pension pot every month
 £15,000  £30  £60
 £20,000  £47  £93
 £25,000  £63  £126
 £30,000  £80  £160

Say you start work, earn £15,000 a year, and are signed up to your company pension scheme. £30 of your salary goes into your pension pot each month. It goes in automatically, so you don’t really notice it. Your employer and the government put in £30 too, so there’s actually £60 going into your pension pot each month – free money for you. And it all adds up. In fact, it could add up to over £35,000 by the time you’re ready to stop working.

The money in your pension pot’s invested to make even more money

When money goes into a pension pot, it doesn’t just sit there. It’s invested in lots of different places to give it a chance to grow more. The aim is that you get even more out of your pot when the time comes to take it

Say you started a pension when you got your first job, and kept putting in £30 a month, you could have racked up a good £100,000 in your pension pot by the time you stop working. (We used an Aviva investment calculator to get this number – it assumes that your investments grow a medium amount, by 4.5%.) Plus, you might get even more than this if your pay goes up, which it hopefully will over the years. The more money you’re earning, the more you might be able to put into your pension. And the more money that’s in there, the more it can grow.

 

While your money’s invested, it can do great things – like tackle climate change or get clean water to communities that need it

Some pension money is invested in companies. These might be companies you’ve heard of, which make things you like, like tea bags and laptops.

If you want to, you can make choices about where your money’s invested – for instance you might want to invest in companies that have a particular social purpose, like beating poverty, researching renewable energy or tackling climate change.

This means that, when you’re saving into a pension, not only are you building up money for the future, you’re also doing great things without even realising. On the flip side, some pension providers might automatically make you save into a fund that invests in companies you might want to avoid, like tobacco or weapons companies.

You can normally check online to find out what your pension pot’s invested in – and make changes if you want to. If your pension provider doesn’t offer you the investment options you want, you can tell them. You can even get involved with organisations, like Share Action, that campaign for pension providers to offer more sustainable and responsible investment options. Whatever you decide to do, your pension pot is your money, and your pension provider needs to look after it in the way you want them to.

 

How can I find out more?

What happens to your pension money – where does it go and what does it do? 

What is a pension and why do I need one?

Quietroom are a group of writers, trainers and strategists who help people make sense of important but complicated topics – like money, energy and healthcare. To find out what they’re up to, follow them on Twitter: @quietroomtweets

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Money for Life work in partnership with the Money Advice Service, an independent organisation set up by government. Money AdviceService provides free, unbiased money guidance across the UK to help people make the most of their money.  If you have a question or need help, you can chat to them here.

Launch Chat

Chat to the Money Advice Service
Monday to Friday, 8am to 6pm
Saturday, 9am to 1pm.