Donate SIGN UP

stakeholder pension or isa?

Avatar Image
johnny37 | 12:37 Mon 28th Jan 2008 | Personal Finance
4 Answers
If my employer did not contibute into my pension would it be better to start a regular savings cash or shares isa?
Gravatar

Answers

1 to 4 of 4rss feed

Best Answer

No best answer has yet been selected by johnny37. Once a best answer has been selected, it will be shown here.

For more on marking an answer as the "Best Answer", please visit our FAQ.
Better from what point of view?
You may find this an interesting read :-

http://www.telegraph.co.uk/money/main.jhtml?xm l=/money/2007/12/03/cmpen03.xml

Personally I think a mixture of both pensions and ISA's is best. Pensions give you a guaranteed but often small and taxable income in relation to the amount of money you have saved,especially if you retire early.

While ISA's enable you to take the money when you want to,are totally free from tax,thus giving you more potential to retire earlier.

Obviously everyone's circumstances are different and if you have access to a final salary pension through your employer then grab it with both hands.But let's say you want to retire early at 55 and you've got a personal pension pot of �100,000. You would get a pension of around �3,500 per year!!!

Source:- http://www.annuity-bureau.co.uk/AF_CMS/Resourc es/Annuity%20bureau/rates_rpi.html

However if you have �100,000 in an ISA with an interest rate of 6% (current aprox rates),you could get an income of �6,000 per year and you still have the option of spending some capital aswell. Although the income will obviously fall as a result.

That's how I look at it anyway!
Question Author
Thanks for that. I will read the telegraoh link. What I can't get my head round is that for a pension the contributions are tax free. Is that better than saving taxed income into an isa if the eventual rewards are tax free. What I am asking (I think!) would the pension grow faster/bigger as there is more money going into it or does it all balance out (swings and roundabouts) in the end? I am a basic rate taxpayer.
When you put money into a pension you get tax relief,so if contribute �78 per month then the tax man will add another �22 to make it up to �100. However from April 08 when the tax bands change from 22% to 20%,you will have to put in �80 to get �20 from the tax man.

If you put the same amount per month in both a pension and an ISA then the pension should grow quicker because you are getting the tax relief. But the difference is that when you draw the pension you will have to pay tax on it,in the same way as you pay tax on your earned income now.

Which one grows the fastest isn't really the point,it's how much you get when you retire that counts. So what the Telegraph article is saying that if you are a basic rate tax payer now,based on the new 20% band, and you expect to still be one in retirement (most people probably are) then you may well be better off with ISA's.

1 to 4 of 4rss feed

Do you know the answer?

stakeholder pension or isa?

Answer Question >>

Related Questions

Sorry, we can't find any related questions. Try using the search bar at the top of the page to search for some keywords, or choose a topic and submit your own question.