Martin Lewis explains differences in two key pension types – ‘Baffled!’ | Personal Finance | Finance

“Now, the only thing I would warn on that, if you’ve got a final salary, and let’s say you were to go to part time hours in the last year, just be slightly careful and always ask your scheme: ‘Will that drop what my final salary would be because I’ve reduced my final salary voluntarily?'”

Mr Lewis went on to explain defined contribution pensions in more detail.

He said: “The other type of pension, which is the one that most companies offer, the one that auto enrolment works on, and also all private pensions fall into this category is defined contribution or money purchase.

“That’s where the amount that goes in is defined, and you have a pot of cash, and then you can choose what you do with that pot of cash in retirement.

“It’s sort of conceptually simpler to understand. You’ve got 10, 20, 50, £100,000 in your pension pot, and you have to be careful how you get it out because of the way that the tax comes.”

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