You gain tax relief on your income when investing into a pension plan. As a basic rate taxpayer at 20% you will benefit £20 for every £80 paid into your pension pot. This extra money will be more than welcome when you reach retirement.
The earlier you start to pay into a pension the more compound interest you will receive. In simple terms, this equates to your money growing year on year. Interest is paid on your initial investment after the first year and for every subsequent year, interest is paid again on any investment. The balance would continue to grow even if you didn’t pay into the account ever again.
Once your pension plan is ready to draw down from you can withdraw a lump sum, buy what’s called an annuity to provide regular payments that stay in line with inflation or a fixed agreement, or keep it invested and take what you need when you need it – potentially allowing it to grow further.