ISAs v Pensions: The Official Retirement Debate

badbaz1975

Hi

Good debate

I put 4% into my pension and the company puts 8%. Is this better than an ISA?

thanks

jamesd

Yes, provided you don't need the money until you're 55.

Assuming you're a basic rate tax payer your 4% costs you 3.2% for which you end up with 12% in the pension - three and three quarters times what you put in. Then even with no investment gains you can take out tax free 25% of the 12% when you're 55. That's 3% so you get out almost what you put in, tax free, and still have the rest to produce ongoing income.

The employer contribution level makes the pension the easy winner at least for what it takes to get the full employer contribution.

dunstonh

I put 4% into my pension and the company puts 8%. Is this better than an ISA?

Yes.

You put in 4% but as a basic rate taxpayer it would cost you 3.2%. So, the amount going into the pension is 12%. Any alternative you were to use would have to be based on 3.2%.

Or to put that another way, its £120 going into the pension when any alternative would be £32.

GrannyLiz

jamesd wrote: »

Easy cases first, where there is little to no disagreement even among those who routinely disagree:

1. The 25% tax-free sum is a benefit only available from the pension and it gains from the tax rebated on the way in. It's also unpopular in some government circles so it carries legislative risk of being eliminated.

Does anyone think this is about to happen immediately in the budget this week?

Paul_Herring

GrannyLiz wrote: »

Does anyone think this is about to happen immediately in the budget this week?

I'd be surprised it it either happened, or was announced for any time soon in the future, this week.

srcandas

Paul_Herring wrote: »

I'd be surprised it it either happened, or was announced for any time soon in the future, this week.

Can't see how it could be withdrawn when so many need the 25% to pay off their mortgages. And when considering how expensive annuities are it would amount to governmental suicide.

Anyway easier to get the money by taxing beer and wine :beer:

Paul_Herring

What they're likely to do (if they do implement it,) instead of withdrawing it entirely, is withdraw it from any future contributions - that's what usually happens when they start messing around with pensions; it's what they did with the public sector pensions - all the changes were made going forward, rather than being made retrospectively.

srcandas

Interesting that the budget, with its withdrawal of increased personal allowances for 65+ year olds, has swung the pendulum for me in favour of ISAs over pensions.

I'm not a high rate tax payer and I have no employer contribution. And with annuities so expensive ISAs will be my route from now on.

But glad I went the pension route in my 30s and 40s because had I gone ISA I would have spent it all by now

Anyone else been influenced?

dunstonh

Interesting that the budget, with its withdrawal of increased personal allowances for 65+ year olds, has swung the pendulum for me in favour of ISAs over pensions.

It shouldnt make any difference really with the main personal allowance heading up to £10k.

And with annuities so expensive ISAs will be my route from now on.

Annuities are not the only option.

srcandas

dunstonh wrote: »

Annuities are not the only option.

Sadly for me I think so. I'm trying to get £24000 income a year. I might just get there. I can take about 15% tax free but beyond that???

I believe the loss to those who have yet to cross the 65 threshold will be £300+ per year

At least in an ISA I'm not tied to an annuity and in any case I can always dump from ISA to pension in the final 12 months if things change.