ISAs - do you need them?

Jake'sGran

It has occurred to me recently that many people must be buying cash ISAs because their pals have them so they think it is a good thing to have. However, I feel sure that a lot of the older people who do buy them do not have the annual income to make them worthwhile for the tax advantage.This year a person age 65-74 can earn almost £9500 before paying tax. Some of my lady friends do have pension entitlements from their deceased husband's company pensions which tops up their annual income but I doubt that many of them bother to add it all up to be sure an ISA is a good thing for them. Also, there must be a lot of bank accounts where an older person is paying Tax on interest then they don't need to.

Would you think I am right about this?

Lokolo

Yes very much so actually!

Especially when we get upto big figures of £50k+, the interest on that is quite substantial as it is.

opinions4u

Jake'sGran wrote: »

It has occurred to me recently that many people must be buying cash ISAs because their pals have them so they think it is a good thing to have. However, I feel sure that a lot of the older people who do buy them do not have the annual income to make them worthwhile for the tax advantage.This year a person age 65-74 can earn almost £9500 before paying tax.

A lot of people in this age bracket get income related benefits. By having their savings in a tax exempt account they don't have reductions from their benefits that they would otherwise suffer.

Some of my lady friends do have pension entitlements from their deceased husband's company pensions which tops up their annual income but I doubt that many of them bother to add it all up to be sure an ISA is a good thing for them. Also, there must be a lot of bank accounts where an older person is paying Tax on interest then they don't need to.

There are. Equally there are a huge number of accounts where elderly savers have signed an R85 form in the mistaken belief that because they are old they are exempt from tax.

Would you think I am right about this?

It all boils down to the individual taking the time to look after their own finances in a way that benefits them most.

evenasus

We are 64 & 65 and I think Isas (cash that is) are certainly worth having.

My husband and myself have almost a £100K in Isas.
£5880.00 interest tax free this year.:T

The rest of the savings (mainly in my name for tax reasons) I have to pay standard tax.:(

missile

evenasus wrote: »

My husband and myself have almost a £100K in Isas. £5880.00 interest tax free this year.:T.

That would be over 5.88% return?

evenasus

missile wrote: »

That would be over 5.88% return?

Yep - fixed rates last year.

Baldur

It was easy to fix at rates of 6% plus on ISAs last year - I have one at 6.2% (until 2012), another at 6.5% (ends next month) and a Regular Saver ISA at 7%, unfortunately the bulk of my ISA savings are currently at 3.75% fixed.

john_s_2

opinions4u wrote: »

A lot of people in this age bracket get income related benefits. By having their savings in a tax exempt account they don't have reductions from their benefits that they would otherwise suffer.

Not quite sure what you mean by this? ISAs still count towards the capital: if a Pension Credit claimant has £6000 in an ISA then this would start reducing the benefit.

Or have I got the wrong end of the stick? (Or my knowledge of benefit rules got hopelessly out of date!?!?)

Milarky

ISAs do count towards the capital of a pensioner for all age-related benefits unfortunately. The taper rate is 40% of an assumed return of 10% for pension credit, for example, meaning that a pensioner with savings above £6K needs at least 4% net to stand still.

It's only capital under 'tax credits' (WTC & CTC) which escapes much more lightly - with ISA income in particular disregarded - on the specious logic that these benefits are 'tax refunds' and so assessment is under taxation (and not benefit) rules.

john_s_2

I was going to suggest the benefits forum would be the best place to answer this particular question, but Milarky has convinced me ;-)

I used to work on Income Support many moons ago - before they split it up into JSA, Pension Credit, and the latest one: ESA. But my knowledge is hopelessly out of date (mid 90s!) so I try to avoid answering any direct questions on the subject.

Be_Happy

There really is a very strong, but untrue, urban myth that ISAs don't count towards benefits eg Housing, Council Tax, Pension Credit. I think the confusion comes because ISAs don't have to be declared in the Income Tax calculations.

When working as a volunteer with CAB this was a very common problem with people being discovered to have been claiming benefits wrongly. The error often crops up after a person dies and they are shown to have been claiming benefits but having substantial amounts in ISAs.