Pension Basics (without the jargon)
- Tom Eason
- 6 days ago
- 2 min read
Pensions can feel complicated, but the basics are simpler than most people think. Understanding how they work can make a real difference to your long-term financial confidence.
This article is for general information only and is not personal financial advice.
WORKPLACE PENSION VS PRIVATE PENSION
A workplace pension is set up by your employer. You contribute from your salary and your employer usually contributes too — which is effectively free money.
A private pension (often called a personal pension or SIPP) is set up by you. It’s often used to:
Top up workplace pensions
Invest bonuses or irregular income
Give more investment control
Many people use both.
SALARY SACRIFICE (PLAIN ENGLISH)
Salary sacrifice means agreeing to a slightly lower salary, with your employer paying the difference into your pension.
Why it matters:
Less income tax
Less National Insurance
Often one of the most tax-efficient ways to save for retirement
HOW PENSION TAX RELIEF WORKS
Pensions are tax-efficient because money going in is taxed less.
Example:
You pay £80
The government adds £20
£100 goes into your pension
Higher-rate taxpayers may be able to claim extra tax relief.
HOW MUCH SHOULD I BE PAYING IN?
There’s no one-size-fits-all answer, but a common rule of thumb is:
Contribute a percentage roughly equal to half your age when you start
This includes employer contributions and is guidance only — not a recommendation.
ARE PENSIONS “LOST MONEY”?
No.
Pension money:
Is invested in your name
Usually accessible from age 55 (rising to 57)
Can normally be taken with up to 25% tax-free
It’s not gone — it’s simply set aside for future you.
THE TAKEAWAY
Pensions don’t need to be complex to be effective.
"
Understanding the basics is often more valuable than trying to chase returns.
"
Compliance note: This content is for general information only and does not take account of individual circumstances. Pension rules and tax treatment can change. Regulated financial advice should be taken before making decisions.
Comments