Basically, it’s a savings account you can’t touch until you’re at least 55.
You get tax relief on your pension contributions, so the amount you pay into your pension is deducted from your pay before tax is calculated. For example, a basic rate tax payer putting £100 into their pension will effectively receive £68 less pay but £100 goes into the pot. Your employer will also pay in.
The earlier you start paying into a pension, the longer it has to grow. Traditionally, the pot of money you’ve accumulated when you retire is used to buy an annuity - a guaranteed monthly payment for the rest of your life. It is common to take 25% of the pot as a tax-free lump sum. The remainder is used to buy the annuity. The downside is that if you die, the pension (usually) stops and does not go to your beneficiary. The upside is that you have the peace of mind that you have a guaranteed income.
The government changed the rules a few years ago to give people more control over what happens with their pension pot. A popular option these days is to draw down from your pension fund rather than take an annuity. The pros are that your fund continues to be invested and your pot can continue to grow. You simply withdraw from your pension whenever you like. If you die, the full value of your pension pot goes to your nominated beneficiary. The downside is that it is possible to run out of money, particularly if you live for a long time after retiring. With this option, you also get 25% of the pot tax free.