ISA's versus Personal Pension

zygurat789

Aegis wrote: »

There are advantages to using an ISA rather than a pension, but they're largely down to access. An ISA can be fully accessed at any time with no problem, .

This can also be a very big drawback as you could end up with no funds at all.

Aegis

zygurat789 wrote: »

This can also be a very big drawback as you could end up with no funds at all.

Absolutely, if you change your mind or go bankrupt it can be a very big disadvantage to have money in an ISA rather than a pension, as your retirement fund can essentially be raided completely either by yourself or by the trustee in bankruptcy..

middlepuss

It seems that all the contributors above are assuming the ISA and PP rules will remain unchanged.

Who knows which, with hindsight, will have been the better option when someone now 30 retires in 35 (37, 40???) years.

For that reason I'd be inclined to hedge my bets and put some of my savings in ISAs and some in PPs.

gadgetmind

middlepuss wrote: »

For that reason I'd be inclined to hedge my bets and put some of my savings in ISAs and some in PPs.

Yup, spread your bets and max out your ISAs and PPs (both have strict limits) and hope for the best regulation wise.

atush

IMHO, it is always wise to save in both areas as you never know how your own circumstances will change not to mention the tax laws.

Having it all in a PP, or all in ISAs can be detrimental in some situations.

dunstonh

Doing both ISA and pension are nearly always the best option for people. Take advantage of both.

kidmugsy

ISAs effectively freeze your current income tax rate. If you expect tax rates to rise for the next few decades, that could be a valuable property. They are also more flexible than a pension, which is valuable if you trust yourself to act like an adult.

A pension can be fine if you pick up an employer's contribution or avoid higher rate income tax.

atush

they can also be a bad idea if you fall on hard times/benefits as they are taken into acct as savings while pensions are not.

No one ever really knows what will happen so hedge your bets.

hugheskevi

they can also be a bad idea if you fall on hard times/benefits as they are taken into acct as savings while pensions are not.

This is a commonly cited advantage of pension contributions over ISAs, but I do question it.

People on this board are commonly told that if they save nothing they will be left to live on Pension Credit, ie the minimum, and this won't be a great lifestyle.

Pension Credit is a lot more generous than working-age benefits, which truly are the breadline.

Anything can happen in the future, and personally I would far prefer to know that if I have a spell of prolonged unemployment, sickness, or whatever, that I can look after myself.

So in the event I did fall upon hard times and had a prolonged period without income, that is exactly the scenario in which I would prefer my assets to be liquid rather than safely tied up out of reach of means-testing, but also out of reach of me just when I need them most.

It seems a bit strange to me that people are told to save in a pension to avoid poverty and means-testing in retirement, but also that a key advantage of a pension is that if the worst comes to the worst in the short/medium term, you will be dependent upon even more derisory State handouts.

Thrugelmir

dunstonh wrote: »

A contribution of £3600 into a pension costs £2880. So, the ISA equivalent would cost £2880

Growth would be identical on both but for this example, lets say its 100%. So the pension value would be £7200 and the ISA £5760

They now wish to draw an income and 5% is the selected income figure.

Ignoring tax free cash to begin with
Pension: £7200 x 5% = £360
ISA : £5760 x 5% = £288

DH for once I must take issue. Why would growth be identical? If your 100% growth was over 20 years at 5% per annum. The compound effect would result in pots of :

Pension £9552 @ 5% = £478
ISA £7642 @ 5% = £382

Interestingly if the pension suffered 20% tax on the entire balance then it would too yield £382 net.