Pensions An A to Z of how to save for your retirement

Everything you need to know to plan for your future and make the most of your finances. Rupert Jones and Hilary Osborne report

- Rupert Jones and Hilary Osborne

Auto-enrolment Since 2012, employers have had to enrol eligible workers in a pension scheme. You can opt out, but the idea is that you are less likely to leave a pension than start one. Once in, your employer must make payments worth at least 3% of your salary. You must put in the equivalent of at least 5% of your pre-tax salary. But many experts say that isn't enough, so consider upping your payments if you can.

Basic-rate taxpayer Contributions into a workplace scheme are usually paid before you are taxed. For a basic-rate taxpayer, this means a contribution of 5% of your salary will reduce your take-home pay by 4%. For other workplace and personal pension schemes, the provider will typically claim back the basic-rate tax (20%) for you and pay it into your fund.

Carry forward There is a maximum sum you can pay into your pensions in each tax year before you have to pay tax.

Currently it's £60,000 for most workers. But, as an extra perk, you can use any annual allowance you have left over relating to any of the last three tax years, as long as you earn at least the same amount you want to pay in. That could be useful for people nearing retirement who want to top up their pension, and those who have had a pay rise/promotion, says the Association of Taxation Technicians. As an example, if you paid in £20,000 this year, you could use the remaining £40,000 allowance for 2024-25 in one of the next three tax years.

Defined contribution With this type of pension, you know how much is going in each month but you don't know how much you will get at the end. This is because the money is invested (see Underlying investments). How much it grows will depend on how well the investments perform. Most private sector workers in the UK are now offered this type of scheme.