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Consumer > How a pension works > Investment options
Investment options
One of the main reasons for saving for retirement through a pension is the tax advantages they receive. Money invested in pensions grows free of income and capital gains tax and therefore has the potential to provide better returns over the long term than many other types of investment. Although this is not guaranteed, and the value of investments can go down as well as up.
Payments you make to a pension plan are normally pooled with payments paid by other people, in what are known as investment funds. These funds are invested by insurance companies in different types of assets, such as property or company shares (equities). Usually these funds have a name relating to the underlying assets that make up the fund, for example, Property Fund or UK Equity Fund.
Different funds have different levels of risk. Some funds may offer greater potential for growth but come with a greater level of risk and may actually drop in value. Other funds may be safer and are unlikely to drop in value but are less likely to provide significant increases in value. The level of risk and potential return will depend primarily on the underlying assets that make up the fund and the stance taken by the fund manager.
Your financial adviser may be able to help you choose the most appropriate investment options for you.
Options at retirement
References to taxation are based on our understanding of current taxation law and practice and may be affected by changes in legislation or by an individual's particular circumstances.
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