Finance
How do pensions work?
A pension works by setting aside money during your working years so you have income after you retire. You (and often your employer) contribute regularly; the money is invested and grows, then pays you a regular income in retirement.
See it in motion.
Watch a 2-minute animated lesson that shows exactly how pensions works.
Step by step
- 1You save money during your working life.
- 2Employers often contribute too.
- 3The money is invested and grows over time.
- 4It provides regular income after you retire.
Frequently asked questions
- How do pensions work?
- You contribute money while working; it's invested to grow, then provides income once you retire.
- What's the difference between defined benefit and defined contribution pensions?
- Defined benefit pays a guaranteed amount; defined contribution depends on how much is saved and how investments perform.
- Why start a pension early?
- Compound growth means money invested early has far more time to grow into a larger retirement fund.