Most people in the UK now save for retirement through a defined contribution pension, where the size of your pot depends on what goes in and how the investments perform. Unlike a final salary scheme, there's no guaranteed income at the end. That makes it worth checking every so often whether you're on track.

This guide explains the factors that drive the value of your pension and how to make a realistic projection. To see your own figures, use the pension fund calculator.

What makes up a pension pot

The value of a defined contribution pension at retirement comes down to six things:

1. What's already in it. Your current pot keeps growing even if you stop paying in.
2. What you pay in. Your own contributions from salary or savings.
3. Tax relief. The government adds tax relief to your contributions.
4. What your employer pays. Under auto-enrolment, most employers must contribute too.
5. Investment growth. How the funds your pension is invested in perform.
6. Charges. Fees for running the scheme and the funds, which reduce growth every year.

Time ties them together. Money paid in at 25 has four decades to grow, while money paid in at 60 has only a few years.

How tax relief works

Pension contributions get tax relief at your highest rate of income tax, up to annual limits. How you receive it depends on the type of scheme.

Relief at source

Many personal pensions and some workplace schemes use relief at source. You pay in from your take-home pay, and the pension provider claims basic-rate tax relief of 20% from HMRC and adds it to your pot. In practice that means every £80 you pay becomes £100 in your pension. Higher and additional-rate taxpayers can claim the extra relief through Self Assessment.

Net pay and salary sacrifice

Other workplace schemes take your contribution from your salary before income tax is worked out, so you get full relief automatically. With salary sacrifice, you also save National Insurance because your contractual salary is reduced.

In the pension fund calculator, choose "Relief at source" if you're entering what you pay from your take-home pay, or "Already gross" if the figure already includes relief.

Employer contributions

Under auto-enrolment, eligible workers must receive a minimum total contribution of 8% of qualifying earnings, with at least 3% from the employer. Many employers pay more, and some will match extra contributions you make. If your employer offers matching, contributing enough to get the full match is one of the best returns available, as it's effectively free money.

Investment growth and charges

No one knows exactly how investments will perform. Projections usually use a steady assumed rate of growth, such as 5% a year, but real returns go up and down, and can be negative in some years. It's sensible to try a cautious, middle and optimistic rate to see a range.

Charges matter more than they look. A difference of 0.5% a year in fees can reduce a pot by tens of thousands of pounds over a working lifetime, because the charge compounds alongside the growth. Check what your scheme charges, including fund fees, and whether lower-cost options are available.

Thinking in today's money

A pot of £300,000 in 30 years' time won't buy what £300,000 buys today. Inflation steadily reduces the value of money, so it helps to look at your projected pot in today's terms. At 2.5% inflation, prices roughly double over 28 years.

A worked example

Alex is 35 and plans to retire at 67. Alex has £25,000 in a pension already, pays £150 a month from take-home pay, which becomes £187.50 with basic-rate relief, and their employer adds £100 a month. Assuming 5% growth a year, charges of 0.5% and inflation of 2.5%:

• Projected pot at 67: about £342,000
• In today's money: about £155,000
• Tax-free lump sum available (25%): about £85,500

You can adjust each of these assumptions in the pension fund calculator.

Taking money out

You can usually access a private pension from age 55, rising to 57 from 6 April 2028 for most people. Your options include:

• Tax-free cash. Up to 25% of your pot can usually be taken tax-free, subject to an overall lifetime limit called the lump sum allowance, which is £268,275 for most people.
• Drawdown. Leave the rest invested and take income as you need it. Withdrawals beyond the tax-free part are taxed as income.
• An annuity. Swap some or all of your pot for a guaranteed income for life.
• Lump sums. Take the whole pot in chunks, with 25% of each chunk tax-free.

The free, government-backed service Pension Wise offers guidance on these options if you're 50 or over.

Limits to be aware of

• Annual allowance. You can usually pay in up to £60,000 a year, or 100% of your earnings if lower, and still get tax relief. It's lower for very high earners and for people who've already started taking taxable income from a pension.
• Carry forward. You may be able to use unused allowance from the previous three tax years.

Don't forget the State Pension

Your private pension sits on top of the State Pension, which depends on your National Insurance record. You can check your forecast for free on GOV.UK. Together they make up your retirement income.

Simple ways to boost your pension

1. Increase contributions whenever you get a pay rise, so you don't notice the difference.
2. Make sure you're getting your employer's full match.
3. Check and reduce your charges.
4. Combine old pensions where it makes sense, checking for exit fees or valuable guarantees first.
5. Review your investment choices, especially if you're in a default fund you've never looked at.