Benefits:

One of the main benefits is that you don’t have to pay capital gains tax on your Personal Pension and the government provides tax relief on your Personal Pension contributions.

For instance, whenever you pay into your Personal Pension pot, the government provides tax relief on what you have paid in. In practise this means that for every £1 pound you pay into your plan, your pension provider will be able to claim tax back from the Inland Revenue at the basic 20% rate.

So for every £160 you pay into your Personal Pension you would finish up with £200 in your pension pot.  

For those of you in the 40% tax bracket, the responsibility is on you to apply for the extra 20% tax relief that you qualify for.

Also a Personal Pension is managed for you stand to benefit considerably from compound interest.  

Drawbacks:
 
The most obvious drawback attached to Personal Pension’s is the risk that your pension fund may not have performed very well for you.

It may not have grown in value as much as you had anticipated, which unfortunately is the risk attached to investing and relying on market forces. 

Risk And Reward! 

It is important to bear in mind that as with any sort of investment, there is no guarantee that your policy will increase in value. It will depend on market forces.

As a general rule of thumb, many people often prefer to take on more risk earlier on in their lives by choosing asset classes (a formal way of referring to stocks, bonds and other types of investment categories) that have can perhaps be above average in terms of risk but consequently more likely to lead to their policies growing considerably more in value.

Later on in life as people move closer to retirement they obviously do not have a lifetime of earnings ahead of them so they reduce risk by altering their asset allocation.

By doing this their policy might not increase in value as much as it could potentially through a riskier asset allocation, but it would less likely to lose significant value in the market.  
 
You can play around with our pension calculator to see what sort of returns on investment you can make with a Personal Pension policy.