ISAs v Pensions: The Official Retirement Debate

daveyft

jamesd wrote: »

daveyft, you can continue to hold an ISA while not UK resident for tax purposes but can't make new contributions. Whether the foreign jurisdiction respects the tax benefit is a different question and I don't recall reading of one that does, but I also haven't researched it.

The tax free cash is not an option that is UK-specific but it varies from country to country depending on the QROPS options there. For example:

Ah, thanks for that. So it looks like a pension investment would be a better bet than an ISA in general but the position varies depending on the destination country.

From that list I might well be tempted to spend 5 years in one of a number of countries at some point as liberating capital from the pension sounds very attractive.

Annalisa_2

While pensions do seem like a good option for those that have a stable high paying job but even then, there is nothing making sure that you will be able to keep this job. Another post on this sight that I was reading he was at a high income job and decided for a pension but then that didn't work out quiet as planned!
heres the story:
http://forums.moneysavingexpert.com/showthread.html?t=949107
Also here is another negative example of pension difficulties
http://forums.moneysavingexpert.com/showthread.html?t=943183
Another factor to take into account when trying to decide is your age...this was debated here
http://forums.moneysavingexpert.com/showthread.html?t=948121
However even though there are some bad sides to the pensions, the problem with ISAs is the temptations to dip into the fund. At least with pensions you will not be able to get to them. In the case of a debt emergency this can be problematic.
There are also different types of pensions to look at such as state pensions and non-state pensions. Also you can always look into pension protections to maybe keep yourself safe. All in all it just depends on who you are and where you're at. If you want a quick summary about pensions I found this site quiet useful to enlighten myself on a retirement plan for myself.
http://uk.moneto.eu/pensions/
Hope this helps!

jamesd

Annalisa, not being able to get to the pension is an advantage if there are major debt problems, not a disadvantage: you can go bankrupt without losing all of your retirement income. People have gone bankrupt owing millions and still been able to retire in comfort while if their money had been in ISAs or outside any tax wrapper they'd have lost it all and been left on only the state pensions.

Similarly it's not counted for benefits until you're able to take the pension, so you can get means tested benefits without having to spend all of your retirement money. As with the debt case, if the money was in ISAs you'd have to use much of it to live on until you got down to the maximum savings threshold to pass the means test.

stphnstevey

jamesd wrote: »

stphnstevey, the company contributions would avoid NI on the salary so it'd probably be better for both you and your company. Have a read of the salary sacrifice sticky topic.

Only 1% employee NI for higher rate tax payers but there's still the employer NI to save and it's quite common for employers to top up the pension contribution by that amount. For higher rate you also have the advantage of not having to wait until after tax return filing to get the higher rate rebate, since the company contribution is gross including higher rate taxable part.

For basic rate there's both employer and employee NI to save.

Hi James (you seem to run this thread now!;) )

Company owner pensions again!
Are the Employers contributions grossed up just like the employee contributions I am used to?
Is that by the highest rate of tax the employee earns?
Are the contributions limited by the salary of the employee? - (I was planning to only pay myself a small salary and rest in dividends to avoid Employee/Employers Nat Ins)

Thanks

doire_2

FAO Dunstonh, Jamesd (or anyone esle)

Im 33 and im an IT contractor.

As such i have no pension as my employer wouldn't pay towards it.

I have a cash ISA which is nearly full for this year.

I have also just recently opened a stocks and shares ISA into which i intend to pay £250 per month.

Is this my best option for saving for my retirement?

Thanks

boobbby

I will keep this simple as I now almost 65
I have £40000 in a personal pension and have today been advised that this will give me a pension of £131 per month taxable.
I also have £40000 in an ISA and at 5% could get a monthly return of £161 which is not taxable. (at the moment I get 6.5%)
Makes you think when saving for retirement!

dunstonh

doire wrote: »

FAO Dunstonh, Jamesd (or anyone esle)

Im 33 and im an IT contractor.

As such i have no pension as my employer wouldn't pay towards it.

I have a cash ISA which is nearly full for this year.

I have also just recently opened a stocks and shares ISA into which i intend to pay £250 per month.

Is this my best option for saving for my retirement?

Thanks

I've answered on your thread asking the same.

I have £40000 in a personal pension and have today been advised that this will give me a pension of £131 per month taxable.
I also have £40000 in an ISA and at 5% could get a monthly return of £161 which is not taxable. (at the moment I get 6.5%)
Makes you think when saving for retirement!

You are not doing your figures right.

You need to remember that the £40,000 in the ISA has come from 100% of your money. The £40,000 in your pension has had between 20 & 40% tax relief (possibly more if you have working/childrens tax credits). If you ignore growth that you have had, that means the pension at its lowest rate upto last tax year (22%) would have cost you £31,200 but the ISA cost you £40,000.


So you have had to pay more into the ISA to get that £40,000 than you have had to pay into the pension.

Also, whilst the ISA may be paying 6.5% now, there will be times when it may only pay 3% (just look back a few years). Its not guaranteed. The pension income should be able to pay 6.5% as well if you wanted it to. If it isnt, then you are either picking lots more options on the annuity, not using drawdown, taking benefits really early or not using the open market option.

boobbby

dunstonh wrote: »

I've answered on your thread asking the same.

You are not doing your figures right.

You need to remember that the £40,000 in the ISA has come from 100% of your money. The £40,000 in your pension has had between 20 & 40% tax relief (possibly more if you have working/childrens tax credits). If you ignore growth that you have had, that means the pension at its lowest rate upto last tax year (22%) would have cost you £31,200 but the ISA cost you £40,000.


So you have had to pay more into the ISA to get that £40,000 than you have had to pay into the pension.

Also, whilst the ISA may be paying 6.5% now, there will be times when it may only pay 3% (just look back a few years). Its not guaranteed. The pension income should be able to pay 6.5% as well if you wanted it to. If it isnt, then you are either picking lots more options on the annuity, not using drawdown, taking benefits really early or not using the open market option.

Thanks for he calculations although I would guess a reasonable percentage of the cash ISA's £40000 over the last 10-12 years is interest.

dunstonh

Thanks for he calculations although I would guess a reasonable percentage of the cash ISA's £40000 over the last 10-12 years is interest.

Of course it is but growth appears on the pension as well. Difference is that 100% of the money in ISAs is a result of personal contributions. Whereas only part of the money in the pensions comes from personal contributions. Part comes from tax relief.

EdInvestor

dunstonh wrote: »

Part comes from tax relief.

75% of which, if you are a basic rate taxpayer, is clawed back when you draw the pension in retirement.Pensions are great if you have a company contribution and pay higher rate tax of 40% and plan on paying basic rate tax of 20% in retirement.

Others should look elsewhere at an ISA.If you fall into the category above later, you can always shift a lump sum into the pension and pick up all the tax relief in one hit.