The state pension is insufficient for most people to enjoy a comfortable retirement, so making additional provision is vital for many of us. There are lots of ways you can do this, but pensions are a popular choice thanks to tax benefits, plus they often come bundled with a job.

What is a pension?

A pension is very simply a 'wrapper' that can hold investments such as funds, cash and shares. The wrapper gives some tax benefits, but also comes with rules covering how much you can pay in and accumulate along with when and how you receive an income in retirement.




The pros and cons of pensions

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




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 annuity rates, both difficult to predict.

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