Continue Pension or New ISA

MoneyPengiun

EdInvestor wrote:

.Thus you won't lose access to tax relief later if you don't use it now - a large lump sum can be put into a pension close to retirement and get the tax perk.

Ed - why would you put it into a pension close to retirement - surely you won't get much more back anyway as the growth is surely in the earlier years. You'd get the tax perk but would probably pay the tax back when you take the pension.

dunstonh

dunstonh - I don't understand what your are explaining here - more people would go the ISA route or vice versa?

The new rules on pension contributions mean that the pension allowance is no longer a use it or lose it allowance like it used to be, for the average person. From April, you will be able to pay upto 100% of your salary (with a 215,000 cap) and get tax relief.

This means that you can pay into an equity ISA instead and wait until a later date to decide if you want it in a pension or not.

The risk with this is that if you cease work, made redudant or off work with illness or a few other events, you will not have the income to pay any more than £3600 per year into a pension. Also, if you then go onto benefits, the DSS will treat the ISA as savings and investments. The pension wouldnt be.

Ed - why would you put it into a pension close to retirement - surely you won't get much more back anyway as the growth is surely in the earlier years. You'd get the tax perk but would probably pay the tax back when you take the pension.

The same investment funds on a pension are present on ISAs. So, ignoring charges, the growth would be the same as both get tax free growth. Whether you get 22% tax relief at the start or 22% at the end makes little or no difference.

Although you get 22% relief at the start on 100% of your contributions, only 75% of the benefits are potentially taxable. At age 65, only income above £7090 is taxable and the first £2090 after that £7090 is taxed at 10%. So utilising a pension up to the tax free allowances and 10% band (include state pensions) is better with a pension.