Pension - why?

maximise

Hello,

I am 24 and advised to save 12% (24/2) of my wage in a pension fund.

What are the benefits of a pension?

Starting with Tax-relief of 20%....
Possibility of employer contributions in 2012...

Would it not be better to save the 12% in an ISA?

Much appreciated.

Stargazer57

Would it not be better to save the 12% in an ISA?

If you are a basic rate taxpayer and don't get any help from your employer I'd say the flexibility of an ISA is probably preferable to the (tiny) tax benefit from a pension.

BoGoF

I don't see what's tiny. You pay in £80, the government pay in £20 (as things stand at the moment)

bristol_pilot

Because the pension income you buy with your pension pot is taxed, apart from the 25% lump sum. Whereas with an ISA, although the initial source of the funds has been taxed, you can get at / spend the capital or invest in tax-free investments. Pensions are best for 40% taxpayers who will be basic rate taxpayers in retirement.

lvader

Cash ISAs are no good for long term savings, so I assume you mean S&S ISAs. At the very least you should be looking to secure an income that makes full use of your income tax allowance. You also benefit from being able to take 25% tax free as a lump sum.

BoGoF

Thing is, everything is up in the air at the moment. Who knows what will be 'tax free' in 3 weeks time.

Stargazer57

BoGoF wrote: »

Thing is, everything is up in the air at the moment. Who knows what will be 'tax free' in 3 weeks time.

...another very good reason for going the ISA route. If you put the money in an ISA, you can move it to a pension later. Once you put it in a pension it is stuck there till retirement and beyond.

mitchaa

maximise wrote: »

Hello,

I am 24 and advised to save 12% (24/2) of my wage in a pension fund.

What are the benefits of a pension?

Starting with Tax-relief of 20%....
Possibility of employer contributions in 2012...

Would it not be better to save the 12% in an ISA?

Much appreciated.

You will contribute 6% and I assume your employer will match that 6%. That is 12% going into your pot and is about right for your age.

The benefit is the 6% employer contribution, that is free money. Your £30k base salary instantly becomes £31800. They contribute £1800, you contribute £1800 (£1440 in real terms) and you are taxed on the rest - PA.

Pension schemes normally have some form of life/sickness insurance applied to them aswell

ISA doesn't come close to the free money of your employer.

McKneff

Stargazer57 wrote: »

...another very good reason for going the ISA route. If you put the money in an ISA, you can move it to a pension later. Once you put it in a pension it is stuck there till retirement and beyond.

But thats the whole point of putting it in a pension.
Its all very well saying its in an ISA for my pension, you can bet your bottom dollar that it would have been long dipped into before your retirement for any unforseen expenses or payment of debts, surprise bills etc .

You really are best off putting it where you cant get at it, get free money from your employer added to it and hey presto a prosperous (if there is any such thing) retirement.

BoGoF

Stargazer57 wrote: »

...another very good reason for going the ISA route. If you put the money in an ISA, you can move it to a pension later. Once you put it in a pension it is stuck there till retirement and beyond.

Actually my point was that ISA's may not have a tax free status in future

Fang_3

Save up until you hit your ISA allowance, making sure that you have three month's pay saved at the very least, and then start contributing to your pension. It will save you money in the long run.