Pension Or ISA?
People are often uncertain about whether to invest into ISA or pension when they start saving for the future.
The following comparison summarises the key differences to help you decide:
| ISA | Pension | |
| Contribution Tax Relief | NO If you save £100 into an ISA the day one value of your investment is £100 . |
YES If you save £100 into a pension and you qualify for tax relief, there is a tax credit which increases the amount in your pension from £100 to £125 on day one. If you are a higher rate taxpayer you get an additional tax saving when you complete your tax returns. |
| Accessibility | AT ANY TIME Whilst you can technically access an ISA at any time, if you invest in a stocks and shares ISA you should have a minimum time horizon of 5 years before you might want to access the investment. |
FROM AGE 55 Typically you can access your personal pension from age 55, however the government is proposing to increase this to age 57 from 2028. You can continue to work if you take your personal pension, but remember, the earlier you take money from your pension the lower your retirement income is likely to be. |
| Withdrawal Options | TAX FREE CAPITAL AND/OR INCOME You have flexibility to take your investment proceeds as lump sums, income or a combination of the two. There is no tax to pay on money taken out of ISAs |
25% TAX FREE CASH AND TAXABLE INCOME You can take 25% of the value of your pension as a tax free lump sum. This lump sum can be taken over time so it feels like it is income which can be useful for tax planning. The balance of the fund is taken as taxable income either by buying an annuity or using a drawdown plan where you can choose how much income you take and when. |
If you are still struggling to make your mind up, you could always split your monthly savings and put half into ISA and half into pension, that way you can get started building financial security for yourself without any further delays.
ISA
Individual Savings Account
GIA
General Investment Account
Pension
Personal Pension Plan
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