It's generally accepted that the State Pension alone is unlikely to provide a sufficient income during retirement. However, nowadays we're living longer, so we need more money than previous generations once did.
That's why many people choose to enhance their State entitlement with another pension – through a plan set up by their employer, or with a personal pension. Either way, the money is invested by their pension provider on their behalf with the aim of building up a more substantial sum for retirement.
Investing in your own pension offers excellent tax advantages. For every £1 you put in, the Government adds 20p (for the 2008/09 tax year) for basic–rate taxpayers. Higher-rate taxpayers can also re-claim an additional 20p (for every £1) via their tax return.
If you're offered a company plan you may be able to benefit from your employer's payments. In both cases, your fund could be worth more at no extra cost to you.
Pensions invest in different types of investments, including investments based on stocks and shares, which carry different levels of risk. The value of your investment can fall as well as rise and you may get back less then you pay in.
Any reference to legislation and taxation is based on our current understanding of law and HM Revenue & Customs practice. Tax and legislation are liable to change in the future.
Tax relief may be altered and the value to the investor depends on their financial circumstances.
