The basic idea
A pension is money you set aside while you are working so that you have an income when you stop. Instead of saving on your own, you save through a pension fund that your employer sets up or joins.
Because the money is invested for decades, it grows far more than it would in a bank account. That growth is what makes a pension worth having.
Who pays in
Each month, a contribution is deducted from your salary and paid into the fund. Your employer usually pays a contribution as well, on top of your salary. You can see your deduction on your payslip.
How much each of you pays is set out in the fund's rules. If you are not sure, ask your HR department for the percentages.
Who looks after the money
A board of trustees governs every fund and must act in the best interests of members. A principal officer manages the fund day to day. Most funds also use specialist firms:
- Administrators keep member records and pay benefits.
- Asset managers invest the money.
- Actuaries check that the fund can pay what it has promised.
The Insurance and Pensions Commission (IPEC) regulates all pension funds under the Pension and Provident Funds Act.
Two main types of fund
In a defined contribution fund, your benefit depends on how much was paid in and how well the investments performed. In a defined benefit fund, your pension is worked out from a formula, usually based on your salary and years of service.
Many newer funds are defined contribution. Your fund's rules tell you which type you belong to.
What you get back, and when
- When you retire: a monthly pension, a lump sum or a combination, depending on the fund rules.
- If you leave your job: you can usually preserve your benefit, transfer it to a new fund, or in some cases take it as cash.
- If you die before retirement: benefits are paid to your dependants and nominated beneficiaries.
- If you can no longer work through ill health: many funds pay a disability benefit.
Where to go next
Read how your contributions grow, or look up any unfamiliar word in pension terms explained.