How pensions work


Receiving a pension when you retire is the result of having saved into a pension scheme; how you save varies and depends on the type of scheme you’re a member of but, generally, if it’s:

  • the State Pension – you make National Insurance contributions, or receive National Insurance credits
  • a workplace pension – you make regular contributions direct from your wages or salary into a scheme set up by your employer
  • a private pension – you make contributions into a scheme you’ve opened as an individual and in your own name

You can be, and probably are, a member of more than one pension scheme. You’ll probably be eligible for the State Pension and you may also have a workplace pension, perhaps as a result of auto enrolment. If you’ve changed jobs during your working life you may have several workplace pensions: you may have transferred and consolidated the value of these into a single scheme but some may be frozen, continuing to grow but waiting for you to either transfer them or reach the age when you can access them. You may have started your own private pension, perhaps in addition to your workplace pension, perhaps because you’re self-employed or perhaps as a way of contracting out of Serps or the State Second Pension.

Your ‘pension pot’

The contributions you make to a workplace or private pension form your ‘pension pot’, a descriptive term for the total amount of money you have in a particular scheme (so, if you’re a member of more than one scheme, you’ll have multiple pension pots). In addition to your own contributions, if you’re a member of a workplace pension scheme your employer will usually make a contribution and this will be added to your pension pot along with any tax relief you may be entitled to.

Your pension pot is invested with the aim of growing its value during your membership of the scheme. There’s a wide range of investment opportunities to choose from including cash, corporate bonds, government gilts, commodities, property and, of course, stocks and shares. The choice of fund will depend on the level of risk either you, if it’s a private pension, or the scheme’s trustees, in some workplace pensions, are prepared to take to increase its value.

Attitude to risk

Although we expect our pension pots to grow, and may dream of spectacular returns that will enable us to live happily ever after, their growth will only reflect the success of what the money has been invested in. No-one can predict exactly how a specific investment will perform, particularly over a long period of time, and, as we’re constantly reminded, ‘investments can go down as well as up’.

‘Risk’ and ‘reward’ are at heart of every investment strategy but how they are perceived varies from person to person. One person may consider a bank account to be ‘safe’ yet another may consider it a ‘risk’; what one person considers a ‘good’ return another will think ‘poor’.

How much risk you’re prepared to take and the returns you expect are usually assessed using a simple, but revealing, psychometric test to determine your ‘attitude to risk’ – the result has a direct bearing on the investments your adviser will recommend to you.

Capacity for loss

Explicitly linked to your ‘attitude to risk’ is your ‘capacity for loss’ which gives an indication of how your lifestyle would be affected if you lost all, or some, of the money you’ve invested.

Generally, investors fall into the ‘low risk’ category if they can’t afford to lose any money and the ‘high risk’ category if they have other investments and assets that could act as a safety net. However, these are assumptions and, as they are not reliable indicators, a specific assessment should be carried out.


How can One Financial Solutions help you?

One Financial Solutions is here to help you. We’ll work with you, assess your current circumstances, review your retirement goals and help you put in place a pension strategy to meet them, ensuring that having a ‘financially secure and comfortable retirement’ isn’t something that’s left to chance.

We’ll assess the value of your State Pension and make sure you receive everything you’re entitled to. We’ll review any workplace and private pensions you may have and recommend any changes we feel are beneficial. If you need a pension scheme we’ll find one for you and, as a truly independent firm of financial advisers, we’ll select one from the entire market and make sure it’s the best one for you.

So, if you’re looking for specific help about any aspect of your pension or just want advice on the subject, please call us on 020 3714 9565 or ask us to call you by sending an email to