saving for pension

daniel80

My brother has been made redundant and is starting his own business. He has a pension pot of about £110000 which he cant touch until he is 60, he is55. He cant make his mind up as to add to his pension each month or drip feed into a stocks and shares isa each month. Perhaps starting off with a income one first to lower the risk. Any advice would be appreciated.

dunstonh

He has a pension pot of about £110000 which he cant touch until he is 60,

why cant he touch it earlier? (not that taking it early when you dont need it is a good thing)

He cant make his mind up as to add to his pension each month or drip feed into a stocks and shares isa each month.

The choice is usually straight forward. The investment options are identical. So, you look at the objectives and then decide which of the tax wrappers is most suitable to meet the objectives.

Loughton_Monkey

daniel80 wrote: »

My brother has been made redundant and is starting his own business. He has a pension pot of about £110000 which he cant touch until he is 60, he is55. He cant make his mind up as to add to his pension each month or drip feed into a stocks and shares isa each month. Perhaps starting off with a income one first to lower the risk. Any advice would be appreciated.

If the pension is 'money purchase' then he can take it from 55 - but once 'taken' he cannot add to it - although could start another one.

If the pension is 'final salary' then it may have a 'Normal Retirement Date' of 60. If so, then he can still take it earlier (legally) but would be advised - normally - not to do so. But he could not make additional contributions to a FS pension.

In either case, taking the pension - if he will be getting taxable income in the near future - is of dubious advantage.

As to investing more money in pension or ISA, then it's a valid choice. Firstly, in either case, neither the pension nor the ISA is really the 'investment'. It is the funds into which he is investing. The funds can be virtually identical either way, and so will grow (or not) exactly the same.

However, the Pension 'pot' will be precisely 25% higher at any future date in time. But the differences are:

1. The ISA fund, although lower, can be pure 'cash', by siumply drawing it out as and when required. It's totally flexible, and attracts no tax (other than interest earned on it once drawn out)

2. The pension fund will be 25% bigger, 6.25% of which is 'free' provided you take the 25% lump sum. The remaining 75%, however, has rigid terms as to how it can be drawn (normally as a monthly income) and will be taxable. In the case of 40% tax payers, then pension becomes very much more favourable compared to an ISA.

Don't understand your reference to an 'income one' for ISA. Do you mean cash ISA? in which case forget what I said about investing in funds, because this is 'savings' and will not keep up with inflation. An extremely bad plan for retirement money.

If you are referring to 'Income' funds as opposed to 'Accumulation' funds, then I don't understand why you believe the former lowers the risk?