Quizzes & Puzzles3 mins ago
Isa Or Pension?
6 Answers
Hi, Is it better to invest the extra £50 I have found each month, into my Stocks & Shares ISA (I have invested £1k in one this year) or a pension that I have had running since 1989 (but don't actually contribute to or haven't had for the majority of those years)?
Any help much appreciated. Thanks.
Any help much appreciated. Thanks.
Answers
1 to 6 of 6
Best Answer
No best answer has yet been selected by Cindylou41. 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.
Depends on you individual circumstances, if you are likely to need access to any money before retirement you will be able to take out of the ISA. However paying into the pension will mean that your contributions will be increased by the tax relief of 20% that will be added. Also if you can make the increase through your salary, it will also the amount of tax you pay on your salary.
It would be a good idea to discuss with an IFA.
It would be a good idea to discuss with an IFA.
It really depends on what your reason is to save. If it IS for a pension, than invest in a pension. You will get tax relief on your contributions directly....not by having to claim back at the end of the tax year but directly every month into your pension pot. eg ::
You put in £80 a month and the Inland Revenue puts another £20 in. So you get £100 a month going but you only pay £80. Its a simple as that. If you are a higher-rate tax payer, they put even more in for you.
No other savings scheme gets this extra FREE money. There are restrictions on when you can access the pension that you have been saving up for and currently its 55. The main advantage of saving into a pension rather than an ISA, apart from the free money, is that you can't take it out after a few years and fritter it away on something trivial. So its disciplined and you get the extra contributions. When you get to 55, you are able to take take 25% of your total pension pot as a tax-free lump sum, to spend how you wish.
So, for example, you get to 55 and you have a pension pot of shall we say £100,000. You can take 25%, ie £25,000 and do what you like with it, as long as the remaining 75%, ie £75,000 is converted into a pension for life. You don't have to take 25% as a tax-free lump sum if you don't want to. You can take less or nothing at at all. You can also enact all this at a later date if you wish but not before age 55.
If you save for your retirement via an ISA or any other cash saving scheme you don't get the lovely tax-free contributions every month. But you can spend it all on whatever you wish. To use my example, you might have £100,000 in your ISA when you reach age 55, or any other age and you can buy a retirement pension with this money if you wish. So you will end up with a pension after all. But the only contributions going in each month have been your own money, and none will have come from the Inland Revenue.
So tax-free contributions and a tax-free lump sum with a pension plan, but you are restricted in what you can do from age 55.
No tax-free contributions with an ISA but complete freedom on what you can do with the money.
The choice is yours. The extra contributions from the tax man every month are very attractive and the discipline is not bad thing, as an income in retirement, ie a pension, was what you wanted all those years ago when you started saving.
You put in £80 a month and the Inland Revenue puts another £20 in. So you get £100 a month going but you only pay £80. Its a simple as that. If you are a higher-rate tax payer, they put even more in for you.
No other savings scheme gets this extra FREE money. There are restrictions on when you can access the pension that you have been saving up for and currently its 55. The main advantage of saving into a pension rather than an ISA, apart from the free money, is that you can't take it out after a few years and fritter it away on something trivial. So its disciplined and you get the extra contributions. When you get to 55, you are able to take take 25% of your total pension pot as a tax-free lump sum, to spend how you wish.
So, for example, you get to 55 and you have a pension pot of shall we say £100,000. You can take 25%, ie £25,000 and do what you like with it, as long as the remaining 75%, ie £75,000 is converted into a pension for life. You don't have to take 25% as a tax-free lump sum if you don't want to. You can take less or nothing at at all. You can also enact all this at a later date if you wish but not before age 55.
If you save for your retirement via an ISA or any other cash saving scheme you don't get the lovely tax-free contributions every month. But you can spend it all on whatever you wish. To use my example, you might have £100,000 in your ISA when you reach age 55, or any other age and you can buy a retirement pension with this money if you wish. So you will end up with a pension after all. But the only contributions going in each month have been your own money, and none will have come from the Inland Revenue.
So tax-free contributions and a tax-free lump sum with a pension plan, but you are restricted in what you can do from age 55.
No tax-free contributions with an ISA but complete freedom on what you can do with the money.
The choice is yours. The extra contributions from the tax man every month are very attractive and the discipline is not bad thing, as an income in retirement, ie a pension, was what you wanted all those years ago when you started saving.
Something I should have added........it rather does depend on what age you are now. If you are close to your chosen retirement age, ie you might be 55, and you want to retire at 60, then the added money from the IR won't make an awful lot of difference either way.
One thing that is terribly important to remember is that retirement isn't the bed of roses financially that perhaps you think its going to be. Almost all of your expenses are still going to need to be paid, like gas, electric, council tax, water rates, car insurance, petrol, food, etc, etc. You probably won't have a mortgage but that's about all. So it isn't very much less expensive the day after you retire as it was the day before. So bear that in mind. Its going to be your mid-60's before you get your Old Age Pension, which will make a difference of course. Basically you can't have too much money coming in when you are retired...the more the merrier !
If you are in work, have you joined their pension scheme ? Its daft not to.
I saw a bumper sticker in America once .." twice as much husband but only half as much money"
One thing that is terribly important to remember is that retirement isn't the bed of roses financially that perhaps you think its going to be. Almost all of your expenses are still going to need to be paid, like gas, electric, council tax, water rates, car insurance, petrol, food, etc, etc. You probably won't have a mortgage but that's about all. So it isn't very much less expensive the day after you retire as it was the day before. So bear that in mind. Its going to be your mid-60's before you get your Old Age Pension, which will make a difference of course. Basically you can't have too much money coming in when you are retired...the more the merrier !
If you are in work, have you joined their pension scheme ? Its daft not to.
I saw a bumper sticker in America once .." twice as much husband but only half as much money"
1 to 6 of 6
