ISAs v Pensions: The Official Retirement Debate

Paul_Herring

cheerfulcat wrote:

Get 25% of your money back and lose control of the other 75%...

Maybe I should have highlighted the word 'may' in my previous comment.

dunstonh

For Growth, ISAs and pensions have identical tax treatment. Both are free of income and capital gains and modern contracts have identical investment options.

Gayle06

Hi, I hope someone can help me as I haven't got much financial experience!!!
I'm 31 years old, married with 2 children and am currently employed by a NHS Foundation Trust Hospital as a staff nurse. I pay approx £130 per month in to my NHS pension presently. However, my husband has just lost his job and I was wondering if it would be a good idea to cash in my pension and start saving approx £100 per month in an ISA, leaving us with an extra £30 per month to play with. Any advice would be much appreciated, Many Thanks, Gayle x. P.S I have been paying in to this pension since July 2005. xx.

GSchubert751

wouldn't you want to have control over your investments??

Andy_L

Gayle06, by leaving the NHS scheme and saving in an ISA instead you are giving up (approx) £3-400 worth of employers contributions.

jem16

GSchubert751 wrote: »

wouldn't you want to have control over your investments??

Not when it means throwing away the employer's contribution of around 14% and giving up one of the best final salary schems around.

Would you take a pay cut of 14%?

jamesd

Gayle06, it would be a bad idea. I can't answer specificaly about the NHS pension but in general you can't cash in a pension until you're 50 years old and even then can only cash in 25% of the value. You could temporarily stop making contributions or investigate reducing contributions. Both of those are likely to be possible.

wotsthat

Gayle06

You can't cash in an NHS pension (unless you are over 55). Leaving the scheme to effectively save £30 cash in hand per month would be one of the biggest financial mistakes you will ever make.

You simply will not be able to afford to buy similar benefits in a private pension.

wotsthat

Originally Posted by Paul_Herring
The 25% TFC (if it will still exist when you retire) is one reason why you may want to cash in your investment ISA's and put it in the pension near retirement.

Get 25% of your money back and lose control of the other 75%

By saving in ISA's and then moving cash at the last minute into a pension would mean that a certain amount of tax relief would be added therefore the 25% would at least be 25% of a larger pot i.e. it could be seen as true tax relief because you get some of it back as cash.

The advantage of ISA's is that at least that option is there so should conditions look favourable closer to retirement you can cash in ISA's and pay into a pension - the opposite isn't possible.

I wouldn't be doing such an exercise in todays conditions but who knows whether such a move might be worthwhile in the future.

jamesd

wotsthat, the odds are that the NHS pension doesn't allow doing that ISA to pension shift and the benefits of that pension are so generous compared to normal personal pensions that it's not worth using a personal pension instead.