ISAs v Pensions: The Official Retirement Debate

EdInvestor

More like 8%,I'd have thought.

Which pension provider?

Nobody should be putting money in WP funds these days.

dunstonh

Nobody should be putting money in WP funds these days.

Really?

There are a couple of WP funds out there still worth consideration under the right circumstances. Although personally, pensions wouldnt be one of those circumstances.

EdInvestor

I'm using this post to re-instate Martins original first post in the thread :-

Both ISAs and Pensions are tax-free wrappers you can use to invest or save money in to provide a return for your old age.

• ISAs In a nutshell you put money in ISAs from your after tax salary, and the returns aren't taxed (very much in a nutshell, its more complex than that, see the ISA guide)
• Pensions. In a nutshell the benefit it you get to put your money in a pension from your before tax salary, but the returns once you retire are taxed (again read the pensions guide for more on this)

It's important to remember both these are just wrappers, in other words you can choose what you put in them. In both you can have a savings product or a range of investments.

So which is better for retirement?

Now I'm opening the debate up. There's no strict right or wrong answer only views. I thought it would be interesting to canvas opinions, there are many qualified (and unqualified) money nerds on these boards. Now its time to have your say.

Martin



Martin Lewis, Money Saving Expert.
Please note, answers don't constitute financial advice, it is based on generalised journalistic research. Always ensure any decision is made with regards to your own individual circumstance.

Don't miss out on urgent MoneySaving, get my weekly e-mail at www.moneysavingexpert.com/tips.

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whiteflag_3

Nice one !

Andy_L

Pseudo-sticky Bump

dlevene

Just when I thought I'd made sense of pensions after reading Martin's articles, I've stumbled on this ISA v pension debate, and now my head hurts

I've used the information from this thread and others to summarise the debate as such:

If you are a BR taxpayer and believe you will continue to be in retirement:
Invest in a pension (tax relief paying in more than tax paid when taken as income) and then ISAs (the above advantage of pensions is negated past a certain figure, ie. 10k)

If you are a HR taxpayer but will be a BR taxpayer in retirement:
Invest in a pension (tax relief paying in more than tax paid when taken as income)

If you are a BR taxpayer but will be a HR taxpayer in retirement:
Max out ISAs first (tax paid when pension taken as income more than tax relief paying in)

If you are a HR taxpayer and will continue to be in retirement:
Invest in a pension (tax relief paying in more than tax paid when taken as income)

If, before retirement, you go from a BR to a HR taxpayer:
Put ISAs into pension (why? Surely what you've put in to the ISAs has already been taxed, so why put it in a wrapper that will mean you get taxed on it when taken as income?)

In any situation:
Take out company pensions if they will match your contribution (free money!)
Opt-in to S2P
Paying off a mortgage is a priority

In a nutshell:
Have as close to 10k in the state pensions as you can
Have as much in company pensions as you can
Don't have a mortgage
If BR: have the rest of the 10k in a personal pension, and then as close to 10k in ISAs as you can
If HR:have as close to 20k in a personal pension as you can (EDIT: made mistake here, see my other post)

Easy :rolleyes:

I am aware that a) things will change and even if this was 100% spot-on now it won't be in the future, and b) this is a gross simplification (eg. doesn't consider options at retirement, ie. the flexibility of the wrapper), but that's kind of the point!

I know it's very unlikely that there will be any degree of consensus in response to this, but you never know, some generalisations could come out. I think if all half-dozen or so regulars agree, hell might actually freeze over Also, if I have said anything very stupid, please be gentle, I'm still learning!

EdInvestor

Oh boy, have you got confused.

It's hard to know where to start.

dlevene

EdInvestor wrote: »

Oh boy, have you got confused.

It's hard to know where to start.

:rotfl:

Oh dear! And I was happy I'd cracked it!

Next question: laugh or cry?

dunstonh

There are quite a few errors or mistunderstanding in your thoughts. I cannot add comment now as I am too busy but be prepared for corrections

dlevene

Where have I gone wrong? The post is too long to go through each point, but from the “nutshell”:

State/company pensions:
jamesd said in post 13 - “Get a state pension forecast and arrange enough pension to total at least 8-10,000 income in retirement. This exploits the tax benefit paying in and lower tax taking the money out in the 0% and 10% bands” and “Take any employer matching funds for a pension up to the employer limit”

If BRT:
dunstonh said in post 19 - “contribute to pensions to aim for a £10k income in retirement as this uses up the £7,280 personal allowance and £2150 10% lower rate band” and “when your pensions are on track to give a real term income in excess of £10k, then switch to ISA”
EdInvestor said in post 137 - “most people retiring in the future can expect the second state pension to top up the state total to something like 7-8k”
Combining these 2 gives - get as close to 10k in company/state pensions, then make up the rest in personal pensions. Over and above that, go for ISAs

If HRT:
I made an error in my first post here. I meant: have as close to the 10k in company/state pensions as above, but over and above that don't go for ISAs, go for a pension
As jamesd said in post 13 - “A higher rate tax payer who will be basic rate in retirement gets a tax benefit from the pension”

In a single (long) sentence: have all of the lower rate band allowance in pensions (go for company/state ones first), if you're a BRT put the rest in ISAs, if you're a HRT chuck the rest in the pension.

Surely that's right!