ISAs v Pensions: The Official Retirement Debate

dunstonh

dunstonh, in my original post I said I assumed that state pensions would mop up these nil-rate allowances, so your statement is incorrect.

You assume wrong though. The basic state pension is just over £4300. The personal allowance and 10p band takes you to 10k (next year the personal allowance will be almost 10k with no 10p band).

scrooge38

dunstonh wrote: »

You assume wrong though. The basic state pension is just over £4300. The personal allowance and 10p band takes you to 10k (next year the personal allowance will be almost 10k with no 10p band).

OK dunstonh as you insist on restating my question to suit your answer, let me rephrase my question to keep it simple for you:-

IF one's income from sources such as basic state pension, SSP, and whatever other non-pension and non-ISA income, is sufficient to use up all of one's personal allowances and 10p band and IF one has, or potentially has ISA or pension income in excess of this, then please explain to me exactly how it can possibly be that the pension income (which is taxable at your highest marginal rate) can possibly be more tax efficient than ISA income (which is not subject to further personal tax) as you have stated.

Please either answer or concede your original statement was in error.

If we have this much difficulty getting a straight answer from an IFA on these boards, where generally people are more clued up than average, what hope do the great unwashed have?

Scrooge

dunstonh

IF one's income from sources such as basic state pension, SSP, and whatever other non-pension and non-ISA income, is sufficient to use up all of one's personal allowances and 10p band and IF one has, or potentially has ISA or pension income in excess of this, then please explain to me exactly how it can possibly be that the pension income (which is taxable at your highest marginal rate) can possibly be more tax efficient than ISA income (which is not subject to further personal tax) as you have stated.

It has been stated on this thread in a few places that you use the pensions to use up your personal allowance. No more, no less. Above that you go for ISAs.

I have never said that pension income is more tax efficient than ISAs.

Please either answer or concede your original statement was in error.

Seeing as I have never said that pension income is more tax efficient, I cannot answer that or concede that a statement I never made was incorrect.

If we have this much difficulty getting a straight answer from an UFA on these boards, where generally people are more clued up than average, what hope do the great unwashed have?

If you asked straight questions, you would get straight answers. However, you have failed to do that so far. You have made incorrect assumptions about the personal allowances and are twisting responses to say what you want them to say in an attempt to be argumentative.

scrooge38

dunstonh, I can't let that go. You said:-

"Disadvantages of ISA

2 - For the first £10k of income in retirement, the income from the ISA would be lower than what the pension would have provided."

You made no reference whatsoever to tax allowances. You clearly portrayed ISAs as being infererior to pensions. I on the other hand made it very clear in my question that I was excluding tax as an issue when asking you to justify your statement.

The problem with many IFAs is that many of them believe the drivel they spout - they endlessly trot out the mantra that pensions are wonderful, whereas in fact they are anything but. They take any opportunity to pick holes in competing products (which don't pay commission) whilst failing to point out the drawbacks in pensions (which do pay commission) - like the fact that the tax "relief" is a big lie - a con, and that the only real beneficiaries of pensions are the pensions industry, salesmen (who prefer to call themselves "advisers"", and the Government, who get a long-term source of cheap borrowing through the sale of gilts for annuities. Any sane person would run a mile from these loathsome products - anyone with any sense does - but the gullible out there buy pensions because "that's what you do" without realising what they are doing.

Please can we have some honesty on these boards?

Scrooge

jem16

scrooge38 wrote: »

dunstonh, I can't let that go. You said:-

"Disadvantages of ISA

2 - For the first £10k of income in retirement, the income from the ISA would be lower than what the pension would have provided."

You made no reference whatsoever to tax allowances.

Yes he has, on several occasions. Read the whole thread.

You clearly portrayed ISAs as being infererior to pensions. I on the other hand made it very clear in my question that I was excluding tax as an issue when asking you to justify your statement.

You cannot exclude tax as an issue. It is an issue. For the first £10k of income where you will be paying 10% and soon to be 0%, the pension will be better as it will have received 22% relief(or more)going in and nothing coming out. The ISA will have had no relief going in and nothing coming out. So for exactly the same contribution the investment in the pension will be higher than the ISA by that 22% relief.

The problem with many IFAs is that many of them believe the drivel they spout - they endlessly trot out the mantra that pensions are wonderful, whereas in fact they are anything but. They take any opportunity to pick holes in competing products (which don't pay commission) whilst failing to point out the drawbacks in pensions (which do pay commission)

To compete with pensions, you will need some sort of investment - all of which as far as I'm aware, pay commission. What competing products are you referring to which don't?

- like the fact that the tax "relief" is a big lie - a con, and that the only real beneficiaries of pensions are the pensions industry, salesmen (who prefer to call themselves "advisers"", and the Government, who get a long-term source of cheap borrowing through the sale of gilts for annuities. Any sane person would run a mile from these loathsome products - anyone with any sense does - but the gullible out there buy pensions because "that's what you do" without realising what they are doing.

It's not a lie, nor a con. Providing you use it correctly the tax relief can work in your favour. I currently receive 40% tax relief on pension payments. I will only be a 22%, soon to be 20%, taxpayer in retirement. So I do benefit and am far from gullible.

Please can we have some honesty on these boards?

Scrooge

Perhaps you need to read the whole thread, especially post 19
http://forums.moneysavingexpert.com/showpost.html?p=4312749&postcount=19

jamesd

scrooge38, you're picking on the wrong IFA. Dunstonh is active in pointing out to people when a pension investment is not the appropriate choice. Since dunstonh has suggested not using a pension beyond the point where the tax allowances end the two of you appear to be in agreement, so this seems like a singularly pointless discussion unless you're just after an IA to pick a fight with.

More than just the wrong IFA, you'll find that most regular commentators here agree with your negative thoughts about annuities, so you're not exactly surprising us with your comments.

For your income level it could be the case that the state pensions will use the first 10,000 of income but please remember that this board is also frequented by people of lower income and those people can benefit from using a pension to exploit the tax allowances in retirement, whether it's by using income drawdown or an annuity, depending on their personal preference.

cheerfulcat

jem16 wrote: »

To compete with pensions, you will need some sort of investment - all of which as far as I'm aware, pay commission. What competing products are you referring to which don't?

Only investment products pay commission to IFAs, not investments per se. Shares bought in a self-select ISA, for example, are free of sales commission.

jem16

cheerfulcat wrote: »

Only investment products pay commission to IFAs, not investments per se. Shares bought in a self-select ISA, for example, are free of sales commission.

Would this not be the same as a SIPP then? Or indeed any pension bought on an execution only basis from an IFA?

cheerfulcat

Yes, if you held shares/gilts/investment trusts directly. If you held funds you would still pay sales commission, even if execution-only, unless buying through a broker who will rebate the the initial and trail commission ( I am not aware of any, though, who will do this in a SIPP ). But I agree with Scrooge's point that the average IFA will tend to sell products which pay commission, and avoid recommending those which don't - this has certainly been my experience.

jem16

At the moment we don't know what competing products scrooge was referring to as he hasn't replied.

I wonder, though, how many are saving for their retirement through shares in a self-select ISA?