A significant number of people in the UK do not fully understand pensions, a new report has revealed.

The study by Halifax Financial Services found 61 per cent of those questioned did not know the difference between a personal pension and a state pension.

A further 79 per cent admitted they did not know when or how their personal pension would be paid to them, while 83 per cent of retirees were unable to say how much of their pension they could access as a tax-free lump sum.

Commenting on the findings, Karen Crowshaw, managing director of Halifax Financial Services, said: "Costs are rising and people are living longer which means it is more important than ever before that people have the funds in place to support their lifestyle in retirement."

It is important therefore, that people seek appropriate financial advice when setting up a pension, she added.

Last month, Adrian Boulding, wealth policy director at Legal and General, urged people to begin paying into a pension as early as possible to avoid having to pay large sums further down the line.

Earlier contributions "enjoy the longest period of investment growth", the expert noted.