How pensions work

What happens to your money?

As a member of a workplace pension scheme money from your employer, along with any tax relief, is added to your contributions. It's then invested for you.

This means your money is used to buy different types of investment on your behalf. The value of these investments is expected to go up in the long term.

Investing is another way of saving. You’re already investing when you put money into a bank account or a building society. You expect your money to grow because of the interest the bank will pay you.

We invest in a range of things that we expect to increase in value over time. Some may grow more quickly but will involve more risk. Others will be less risky but will probably grow slowly.

Understanding risk

Investing involves some risks. When you invest, risk can be a positive or negative thing. By taking calculated risks we aim to grow your money more quickly than putting your money under the mattress.

If you keep your money under the mattress, there's an almost certain risk that your savings will buy less in the future than they do now. This is because the cost of living usually rises over time.

With a pension scheme the value of your retirement pot can go up and down over time and there's a chance you could get less out than you put in. Taking more risk can mean the value of your retirement pot grows more but it also means the chances of you getting less are higher.

NEST will carefully manage the amount of risk you take at every stage of your time saving with us. The aim is to take the right amount of risk to get you a good return on your investment without increasing the chances that you'll see lots of ups and downs in your pot. This is all about trying to get you a better income in retirement.

What will your money be invested in?

Your money is invested in a fund. In a fund your money is pooled with the contributions of other investors. This means that with only a small amount to invest you can access a range of investments.

There are lots of different ways your money could be invested in a pension scheme. The most common types of investment are shares, bonds and gilts, property and liquidity funds, which are sometimes known as 'cash'.

You can read more about different types of investment in our Different types of investment information sheet (PDF, 138KB).