How will a pension benefit me?

It is often easy to view a pension as simply another financial product that costs you money and takes time to arrange. The truth however is rather different and the importance of making your own savings for retirement has never been higher.

Here are four questions that might help get you thinking about your retirement planning:

At what age would you like to stop working?

• Arguably the most significant factor affecting the age at which you will retire will be your financial circumstances. Many people picture themselves retiring in their 50s or early 60s and enjoying exotic holidays and a leisurely lifestyle, but the earlier you retire, the larger your pension fund will have to be in order to pay you an adequate income to fund your standard of living.

Where will your income come from when you stop working?

• You may have built up a pension through your employer(s) which will provide you an income. Whilst it is easy to take comfort in this, have you given consideration to whether this will actually pay you the desired amount when you stop working? It's better to find out now whilst you can still take action such as contributing more to your company pension or a personal pension such as a SIPP. Our pension calculator can provide valuable insight into how your pension savings will affect your retirement income.

What will you want to do with your time when you stop working?

• Whether it's round-the-world holidays, weekends at a country cottage, or leisurely days in the garden you're planning, you will need a certain level of income to enable you to do so. Delaying pension contributions by 10 years can cut your total pension fund at retirement by more than half. It's those additional funds that will really enable you to relax and enjoy yourself when you retire.

Why is a personal pension better than any other form of investment for retirement?

• You will receive tax relief on your contributions - for example a contribution of £100 will only cost you £80 as the government will automatically add the remaining £20. Plus if you're a higher rate tax payer you will receive up to a further £20 back via your tax return. So a contribution of £100 could cost you as little as £60. Find out more.
• The money in your pension will grow free of UK capital gains tax and income tax (tax deducted from dividends cannot be recovered).
• When you retire 25% of the value of the fund can normally be taken as a tax free lump sum, with the remainder then being used to provide you with an income (subject to tax).
• No inheritance tax - if you die before you begin taking the benefits from your pension the funds will normally be passed to your spouse or other elected beneficiary free of inheritance tax.