There are pros and cons of using a pension or savings account to save money for your retirement. The main benefits of using a pension for your retirement planning are:
Tax relief – whether you have a workplace pension or a personal pension, your salary is taxed after your pension payments are made, effectively making every £80 you invest in your pension worth £100 for a basic rate taxpayer. Higher and additional rate taxpayers are able to claim additional tax relief.
Because you can’t access your money until you are at least 55, there is no temptation to dip into your savings like you could in a savings account, safeguarding your money for your retirement.
Your employer may match your contributions up to a certain amount, potentially doubling your pension savings.
If you start your pension early enough, the compound interest on your savings can make a huge difference to your eventual pension pot.
If you choose to buy an annuity, you will receive a guaranteed yearly income throughout your retirement.