Pension or ISA?

dogshollydog

Hi could someone point me in the right direction - which is best pension or ISA? I am currently self-employed. I have no pension or savings, i'm 36 and i'm only able to afford £50pm (I guess anything is better than nothing!) i'm just not sure which is best, I have seen Virgin do a pension which you can increase/decrease payments (good as my income fluctuates) But i'm a little edgy about pensions are they really worthwhile? would I risk not even getting back my investment? Help i'm confused! Many thanks in advance for any help, it's much appreciated.

kidmugsy

You have no savings so you need to build up some instant-access cash. Pensions can wait. You want a Cash ISA with some convenient combination of interest rate and access.

atush

And are you paying your self emplyued NI contribs? If not, do it now.

RosieBee_2

Hi,

i would say one point to consider would be how soon you would like access to the money you save. With a pension the money can really only be accessed after 55-years old and that is at a push since you will be using something like pension release. If you can do with leaving the money in the account for more than twenty years then a pension is something to consider.

this site here lists the top 10 pensions in the UK

pensions are not the only vehicle for making sure you have an income for your old age, others may include ISAs, property or even the stock market. it would depend on preference and how much control or risk you would prefer.

with the changes the Government are looking to make, it is uncertain as to what will happen with company pensions in the public sector.

RosieBee

innovate

RosieBee wrote: »

this site here lists the top 10 pensions in the UK

pensions are not the only vehicle for making sure you have an income for your old age

There are also SIPPs, which could be a much better deal than buying something dubbed "pension"

Daniel_Elkington

That money.co.uk site is rubbish for pensions. The AMC is not realistic and the number of funds in most cases is inaccurate. Additionally skandia is accessible only via an IFA.

There are also SIPPs, but the extra charges on those when paying in 600 a year will negate any investment growth.

If I were you I'd invest in an investment ISA if affordability is really an issue because this way you get to keep access. At the end of each year you can assess whether you can afford to lose access to the money in exchange for the tax relief.

I would take advice on fund choice as, yes, investment returns will go up as well as down and you may get back less than you invested. However, with you probably retiring at age 70 you have an investment term of 34 years, this is very long term. It is unlikely that a diversified portfolio would lose money over that term.

dogshollydog

Hi Yes I do, currently my business is Ltd, but that may change to sole trader as work is slack at the minute.

dogshollydog

Hi Thanks all, I think I really am interested in something long term, I would really have to behave myself with the ISA and not go delving into it. Is there something out there that I could pay into, may increase or decrease payments but not be able to get at so easily?

I do pay contributions, but would there be some tax benefit to having a pension??

dunstonh

There is a pension vs ISA sticky thread in the pensions forum.

Daniel_Elkington

I usually tell my self-employed clients to do the ISA thing and ask the accountant how much should go in pension at the end of the year. Then the accountant usually can work out what level of payment would optimise the taxation situation.

atush

pensions have two things in their corner that ISAs don't.

1- immediate uplift of Basic rate tax. So an ISA would be worth less on Day 1, even if invested int he same fund.

2- they are (until they can be drawn) completely safe from creditors (should your 'slack' business turn into no business and failure) and from means tested benefits.

Do you have 6-12 months in savings or investments should you have en emergency or fall onhard times? Do you have any debt?

If you have no savings at ALL, you need to start saving that 50/month into a cash ISA for emergency funds. And at 36 you should be able to save more, and probably are if you cut out the waste. How long since you checked your utilities and insurance for cheaper rates? Mobile phone and tv/internet tariffs? Poncy coffees everyday? Pints down your local several times per week? Take outs instead of fresh food?

you'd be surprised at how much you can save.