Cash Isa Query

[Mike25]

Can I add 20k to an isa every year and the interest be tax free? Therefore if I maxed out my annual allowance for 10years, I could earn interest on 200k tax free?

I've no pension at 45, thinking of other options instead 

[newmodarmy]

Yes.

[newmodarmy]

As long as it's the only ISA you pay into.

£200000 (plus accrued interest if you leave it in) at age 55 won't give enough of an income to live off at age 55.

[Canary42]

The limit is most unlikely to stay at 20k throughout the next 10 years.

[Mike25]

"£200000 (plus accrued interest if you leave it in) at age 55 won't give enough of an income to live off at age 55"

 

If I draw down on it plus get interest, it would get me to the state pension age. Assuming I quit work at 55.

[newmodarmy]

True, if you'd be happy to draw down and live off maybe £20000pa (less tax) until state pension age (likely to be nearer age 70 by then) and then take an even lower income ( state pension) from state pension age.

Is contributing to a pension definitely not an option so you can benefit from tax relief?

[New Judge]

"The limit is most unlikely to stay at 20k throughout the next 10 years."

Probably not. It hasn't changed since 2017. If it's going to change it will probably be reduced under the current government.

"As long as it's the only ISA you pay into."

You can open any number of ISAs now, nma (so long as you do no exceed your annual allowance of £20k).

[newmodarmy]

Yes newjudge- it was just that the OP said "add 20k to an isa every year", so if he did that to one ISA he/she couldn't pay in any more in a year to that or any other isa.

[New Judge]

Fair enough!  😎

[Mike25]

Is paying into a pension better than building an isa?

[newmodarmy]

If youre the sort of person that can save £20000pa you may well be a higher rate taxpayer so would get 40% relief on your contributions.  For a £20000 annual contribution you would only have to pay in £12000 from your net salary; the other £8000 would be paid in by HMRC. And if youremployers contributes something too, maybe even matches it, you'd be even better off.

[Mike25]

I'm not a higher rate tax payer. I've just paid off my mortgage and now want to build a pension. I was using 20k as an example. I could maybe put 12k away per year but that would be tight. Whole life spent saving for when old and I might not even make it.....

[newmodarmy]

If you retire at 55 with no pension other than the prospect of some cash drawdowns and a state pension at around age 68, maybe 70 by then, you may find your money needs to last you another 35 years.

[Maydup]

I suggest doing both tbh.
You gain on the tax back with a pension and invested wisely it with grow well over 10 to 15 years. Plus if you are employed your employer has to contribute too. I wonder if future governments will change the age at which you can access it? It was 50, it's now 55 with talk of it being changed to 57. Could be 60 by the time you retire and state pension at 70. 

An ISA has the tax free interest but rates go up and down. However it has the advantage of being accessible should you need it or some of it before your pension. But I recommend using a financial adviser who can help you to invest it in stocks and shares as it will grow better there than in cash.

I retired 4 years ago, I don't get my state pension for another few years yet but I'm drawing down on my personal pension which remains invested. Last year it grew more than the total amount I withdrew to live off for the year!
I haven't touched the ISA but I'm pleased I have it as no government policy can stop me accessing it whenever I wish.