A pension is very simply a method of saving for retirement.

It is a savings 'wrapper' that can hold different investment products such as funds or cash.

The wrapper gives some tax benefits, but also comes with rules covering how much you can pay in and accumulate in your overall pension pot.  

What are the pros and cons of pensions?

Pensions can be a good way to save towards retirement, but they're not perfect:

 

Advantages

Disadvantages

Tax benefits - The taxman gives income tax relief on pension contributions and there's no tax on income or growth on investments held within the wrapper. Plus a quarter of your pension fund can be taken as a tax-free lump sum at retirement.

Discipline - Not having access to your pension until at least age 55 removes the temptation to squander your savings before retirement.

Risk - Unless you're fortunate enough to have a final salary pension then your retirement income will depend on future investment performance and/or annuity rates, both difficult to predict.

Inflexibility -  Not having access to your money until at least age 55 will be a downside for some.

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