We’re talking about workplace and personal pensions - the retirement pots you (and often your employer) pay into during your working life. It’s worth noting that these are different from the State Pension.
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These pensions grow through contributions, tax relief and investment returns. And they play a big part in shaping your financial future.
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We’ll walk through the powerful benefits, common pitfalls and key things to think about - whether you’re just getting started or already paying in.
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By the end, you’ll feel clearer, more confident and better equipped to make your pension work for you.

1. Free Money (Yes, Really)

• Employer contributions

Most employers add money to your pension every time you contribute. Thanks to auto-enrolment, this is a built-in perk of most UK jobs - and one of the most valuable financial benefits you’ll ever get.‍

• Government tax relief‍

For every contribution you make, the government adds extra through tax relief. It’s essentially a bonus on every pound you save. The higher your tax band, the more you receive.

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2. Tax-free investment growth

Your pension pot is invested, and the growth you earn is sheltered from Capital Gains Tax and Income Tax. That means your money compounds faster than it would in a normal savings account - boosting your long-term returns.
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3. A 25% tax-free lump sum

When you reach retirement age, you can usually take up to a quarter of your pension as a tax-free lump sum. It’s your money, ready to use however you choose - whether that’s paying off a mortgage, travelling, or creating a financial cushion.

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4. The power of compounding

The earlier you start contributing, the more time your money has to grow.

‍Example:

• John saves £100 a month from age 20

• Angela saves £100 a month from age 40

‍By 67, John could have around double Angela’s amount, even though they both paid in the same total.
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Why? Compounding. It rewards patience and time.

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5. Potential inheritance perks

Until at least 2027, pensions usually sit outside your estate. That means they can often be passed on free of Inheritance Tax. As long as your beneficiary nominations are up to date, your pension money skips probate and goes straight to the person you’ve chosen. A powerful tool for legacy planning.

1. Money is locked away  

You generally can’t access your pension until at least age 55 (rising to 57 from 2028).This helps protect your future self, but it also means your pension isn’t a pot you can dip into for emergencies.

2. Investment risk  

Pensions are invested, so the value can go up and down. This is normal. But if you’re close to retirement and your investments aren’t managed carefully, a market dip could reduce your pot at the worst moment.

3. Not saving enough  

Auto-enrolment is a great start, but minimum contributions might not be enough for the lifestyle you want later.
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It’s worth checking:
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• What income you’ll need in retirement
• Whether your current contributions will get you there

Small increases now can make a big difference later.

4. Pension scams  

Scams are a real and damaging risk. If someone contacts you out of the blue promising high returns or early access to your pension, be cautious. Scammers often create a sense of urgency - always double-check before making decisions.

5. Deferred tax  

You don’t pay tax on contributions now, but most withdrawals after the 25% tax-free lump sum are taxed as income. Planning how and when you withdraw can help you keep more of your money.

6. Lose it if you don’t use it (some types)  

Some pension types, like defined benefit schemes or annuities, may not allow you to pass on unused pension money. The rules vary, so it’s important to understand what applies to your plan.

7. Default investment funds can miss the mark  

Many pension schemes automatically place younger savers into “balanced” funds. While these sound safe, they may limit growth when you’ve got decades to invest. It’s worth reviewing where your pension is invested and whether it’s working hard enough.

Here are some helpful questions to ask yourself:
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• Do you know how much you’re contributing - and how much your employer adds?
• Have you checked where your pension is invested?
• Do you have an idea of how much you’ll need for the lifestyle you want in retirement?
• Are your beneficiary nominations up to date?
• Would speaking to a financial coach help you feel more confident?

A pension isn’t just about retirement. It’s about choice, freedom and financial security for your future self. Getting to grips with the basics now can make a huge difference later. You don’t need to know everything. But understanding a little more today puts you firmly in control.

And if you’re ever unsure, you can speak to a financial coach. We’re here to help you feel confident, not confused - one step at a time.

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