In this scheme, you (and usually your employer if you have one) pay in contributions which are invested in an investment fund or a number of different funds. These will hopefully grow. The total amount you have saved is called your pension pot.
A defined contribution pension scheme has two stages:
- Accumulation – This is when you are building up your savings before you have retired. Your pension pot is uncrystallised at this stage.
- Decumulation – This is when you are taking money out of your pension pot after retirement. Your pension pot is crystallised at this stage.
When you come to take your benefits, the size of your pension pot will depend on:
- how much money you have paid in
- how much money your employer has paid in (if it is a workplace scheme)
- how well your pension savings have been invested and grown
- how much has been taken away in charges.
Your pension provider should send you a benefit statement every year. This tells you how much your pension pot is worth and gives you an estimate of how much pension you will get.
The bigger your pension pot is, the more benefits you will be able to take.
After the April 2015 changes, once you reach the age of 55, you can now use your pension savings in any way you wish. See below for information on retirement options.