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Pensions Explained > 3 Steps of Pension Saving

The 3 Steps of Pension Saving

Pension saving can seem complex and difficult to understand. It may help to think of it as a three step process. In this section you can read a brief overview of each of the three stages of pension saving.

1 Joining a pension scheme

Who can save in a pension?
Anyone can save in a pension scheme. Whether you are employed, self-employed or not working, you can pay money into a pension for your retirement.
To save into a pension you will need to choose a suitable scheme and apply to be enrolled before you can start putting money in. Different pension schemes vary, for example in terms of charges and how your money is invested so it’s a good idea to compare.
If you are a UK worker your employer may automatically enrol you into a pension scheme
Under the Pensions Reforms which started from October 2012 you may have new workplace pension rights. This could mean that on a certain date set by the government, your employer will automatically enrol you into a pension scheme. The scheme will be one chosen by your employer and will have to meet certain government criteria.
You will not need to do anything; this will be arranged by your employer on your behalf.
Whether your employer has a duty to enrol you will depend on several factors such as your age and how much you earn. 

To find out more about new workplace pension rights and whether you qualify click here.

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2 Saving in a pension scheme

´╗┐Contributing to your pension pot
Once you have enrolled into a pension scheme, or been automatically enrolled by your employer under your new workplace pension rights, you can start making contributions into your pension pot.
Your employer may also put extra contributions into your pot on top of what you save, and the government may give you tax relief which is added to your pot too.

How much can you save in a pension?
How much you pay into your pension pot, and how often, is up to you, subject to limits set by the government.
There is a maximum combined amount which can be contributed to your fund by you or your employer in a year without losing tax benefits.
This is determined by your relevant earnings, including your salary, bonuses and any profits from self-employment.
Earnings x 0.8 = maximum annual net contribution
If you have low, or nil, earnings you can make personal contributions up to £2,880 per year and BCF will claim basic rate tax relief and add this to your pension pot.

It’s important to remember that the more money you contribute to your pot, and the longer you leave your money in there, the more likely you are to have a good pension when you come to retire.
What happens to the money you invest?
The money in your pension pot, including your contributions, any contributions made by your employer and any tax relief you get from the government, is invested in a variety of ways.
Different pension schemes invest members’ money in different ways. It’s a good idea to compare pensions to make sure you choose a scheme which suits your investment needs.

The aim of a pension is always to make the money in your pot grow at a faster rate than it would if it were invested in a bank or building society savings account. 
What are the risks?
Because the money in your pot may be invested in things which can go up or down in value such as property or gilts (depending on the investment strategy of the scheme you choose), the value of your pot can fall as well as rise. There is a chance that you could get out less than you put in. However the objective is that pensions are carefully managed to make sure that the outcome is as good as possible for members.

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3 Getting your money when you retire

Your pension provider may ask you to set a date at which you would like to retire. This can be any time after you reach the age of 55. At this date you can use the money as you wish either by taking lump sums, or income, or both.

Pension Wise, the Government's new pension guidance service, provides a free impartial service to help you understand your options at retirement. It's available at, by calling 0800 138 3944, or face to face.
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