34 soon to be 35 year old & looking to start a pension!

edinburgher

Get a damn pension man. It's free money, and you're 35. You need it.

What he said! OP, please don't underestimate the power of compound returns (i.e. interest getting added to interest on interest (and so on), or dividends paid out and added to your pension funds because you hold a tiny share in some of the biggest companies in the world when you invest through said funds).

Yes i am getting a pension,just set up a tax free account first before i miss out

You'll get a fresh ISA allowance every year (unless they do away with ISAs), whereas you will not get any extra years of life to start building your pension So, while utilising ISAs is a good plan, it shouldn't be your priority (anyway, an ISA only takes a few minutes to set up).

Rob_192

Andymark1

If by Isa you are refering to a cash Isa, then you might as well be p1ssing in the wind in terms of pension provision. If you are looking at an Isa rather than a pension, and there's a good arguement for this (do the reasearch), then it must be a Stocks and Share Isa.

R

dunstonh

for income, pension beats ISA every time. It isnt good for capital provision but thats not what it is for. However, for income provision, an ISA will provide less.

Especially now that the annuity compulsion has gone.

Loughton_Monkey

CRSRetirement wrote: »

......This isn't the voice of an IFA (i just work here), but the only downside I can see for an ISA is the temptation of withdrawing the funds before retirement?.......

You are probably forgeting the tax relief and 25% tax free lump sum.

Yes, we all understand the general 'drip feed' nature of pension funds. But 99 times out of 100, that is exactly what the pensioner wants. Virtually none of them would retire today, take just about all their savings, and blow it on a world cruise. They want to keep it invested and draw a regular amount. So...

1. Pension funds and ISA funds are essentially 'the same thing'. Hence the pension will be 25% bigger. By taking the lump sum, 25% of the 'extra' [6.25% of the total fund] is pure 'profit' over and above the ISA.

2. There is a danger with drawing from your ISA fund, that it will exhaust itself if you live a long time. The pension fund tends to get 'annuitised' at some point, thus underwriting the chance of a long life.

bendix

CRSRetirement wrote: »

Can you explain to the people how a pension is better than an ISA for someone with £125 to save each month?

Because, you nitwit, his £125 a month immediately turns into £150 a month with tax relief if he is a basic rate taxpayer and £175 if he is 40% taxpayer, plus he has the chance of getting returns ON TOP OF THAT.

Invested in an ISA his paltry £125 a month is worth £125.

How difficult does this have to be?

Honestly, this forum beggars belief sometimes.

jamesd

bendix, you're missing the other side: the pension income is taxable, the ISA income isn't, the rate at which you can take money from the pension is limited (often to below it's natural yield), the ISA isn't. That takes back a large chunk of the benefit but not all of it. The pension still has an edge on income once you're old enough (well above state retirement age). I worked out the difference between pension and S&S ISA with the same investments in both a while back, using the 2009-10 personal allowances in effect at the time. But those don't include a check on the GAD allowance, which was recently lowered and may bar taking the illustrated income from the pension.

The pension has a serious limitation in how much income can be taken, since at early ages, below 70 or so, it's possible that investments will generate more income than can be taken out under drawdown. Sadly this government decided to make pensions less attractive compared to ISAs for those who retire before state pension age. It's necessary to draw at a higher rate than the pension will allow because of the absence of the state pension income, which needs to be replaced somehow. The ISA lets you take the money at whatever rate makes sense and for those who plan to retire before state retirement age, particularly well before, it's a very useful part of the picture even though it doesn't get the same tax relief.

bendix

james . . you and I both know that the real issue with ISAs is that people will ALWAYS be tempted to dip into them, decimating their value in the long run. Every day on this forum sees a new thread about wanting to sell their pensions or get a pension loan. THAT is why pensions are essential - people are financiall naieve and undisciplined.

There, the elephant in the room is out and wandering around.

edinburgher

THAT is why pensions are essential - people are financiall naieve and undisciplined.

There, the elephant in the room is out and wandering around

Pretty much, yes.

Rob_192

bendix wrote: »

james . . you and I both know that the real issue with ISAs is that people will ALWAYS be tempted to dip into them, decimating their value in the long run. Every day on this forum sees a new thread about wanting to sell their pensions or get a pension loan. THAT is why pensions are essential - people are financiall naieve and undisciplined.

There, the elephant in the room is out and wandering around.

Talk about tarring everybody with the same brush! Isas form a very important part of my retirement provision and trust me they will not be dipped into for anything except to provide me with an income in retirement, but I know where you're coming from and for many people this discipline would be sadly lacking.

R

dunstonh

Pension beats ISA for income. Fact.

You have the same investment and same charges with modern options. So, that just leaves tax and maturity differences.

Pension, even with basic rate relief will be higher in fund value. Yes, that income is taxable but only above your personal allowance. Plus, you can take 25% out tax free (which can feed ISAs). So, only 75% of the fund produces a taxable income and only after personal allowance used.

ISAs certainly do have advantages and the ISA v Pension thread covers those (although probably needs an update to reflect the removal of annuity compulsion as the issues of estate planning now favours pension whereas it was ISA previously).

In reality, most people are going to be better off with both IF they have the self control to micromanage their planning correctly.

If you are close to the age allowance reduction figure then it could swing to ISA more. Or if you have an estate that is going to suffer IHT then it could swing to pension more. However, the bottom line is that pension will beat ISA on a like for like calculation even if 100% of the pension income is liable to tax.