S&S ISA or Pension

tony4147

I'm in a group pension scheme with scottish Widows, I contribute into this via salary sacrifice. I work through an umbrella company so I also gain on the Employers NI, roughly every £100 into the pension costs me about £52/54, also the AMC is 0.7%

I have just had a small increase (£100/month gross) that I want to save away for retirement in 15 years time and I'm thinking would I be better off putting this into my pension or maybe SS ISA? If I do the pension then my £100 will effectively be near £200 with the salary sacrifice.

I tried a SS ISA a few years ago with a building society and after 5 years I only got back what I had paid in.

Any ideas as which would be best?

kidmugsy

tony4147 wrote: »

I contribute into this via salary sacrifice. I work through an umbrella company so I also gain on the Employers NI, roughly every £100 into the pension costs me about £52/54

The pension is best, by miles (assuming that you have an adequate emergency reserve tucked away in Cash ISAs).

tony4147

Yes, I have cash ISA's I can at if needed.

atush

I would say the pension then.

AlwaysLearnin

Are you retiring at normal retirement age in 15 years, or early? Pension contributions would probably still win, but if going early then having funds to allow you to defer drawing the pension might be worth considering.

tony4147

AlwaysLearnin wrote: »

Are you retiring at normal retirement age in 15 years, or early? Pension contributions would probably still win, but if going early then having funds to allow you to defer drawing the pension might be worth considering.

I'm 50 now so will probably work to 65/67. I'm just looking at what will make the most growth, and I did think the pension because of the salary sacrifice, it near enough doubles straight away.

kidmugsy

It's a matter of using the pension while it's available on such good terms. If, say, the next government scraps salary sacrifice, you might then go for the S & S ISA instead. (Quite why the government is so keen to supply so many people with such a wonderful tax avoidance dodge defeats me. Surely it can't last?)

gadgetmind

Pension and S&S ISAs can invest in almost exactly the same assets.

The pension has powerful tax advantages but the S&S ISAs will allow you to use them at any rate you choose, which can be handy to bridge the gap between retiring and state pension age.

So, the best answer is to do both, but in your position favour the pension.

Cygnus_Alpha

Tony, can i ask if you are a higher rate taxpayer?

If so then given your age, it is a no-brainer, go for the pension (unless you are too near the lifetime limit!). Obviously if you want to keep some flexibility then stick some of it in an ISA.

If you are a basic rate taxpayer, the advantage of the pension is not as stark.

Strangely despite people slagging off pension charges, my pension AMCs are actually lower than my ISA AMCs but I am trying to put that right by switching my ISAs to 'clean' funds.

tony4147

Cygnus_Alpha wrote: »

Tony, can i ask if you are a higher rate taxpayer?

If so then given your age, it is a no-brainer, go for the pension (unless you are too near the lifetime limit!). Obviously if you want to keep some flexibility then stick some of it in an ISA.

If you are a basic rate taxpayer, the advantage of the pension is not as stark.

Strangely despite people slagging off pension charges, my pension AMCs are actually lower than my ISA AMCs but I am trying to put that right by switching my ISAs to 'clean' funds.

Yes I'm a HRT, the pension looks more favourable

Ximian

Interesting thread, I was actually researching the same question (pension or ISA) last week and found the two articles interesting especially the comments:

http://www.telegraph.co.uk/finance/personalfinance/investing/isas/9881234/Isa-or-pension-which-is-the-better-way-to-save.html

http://www.guardian.co.uk/money/2013/mar/17/isa-save-retirement

"In terms of the tax benefits, pensions are a clear winner over Isas for higher-rate taxpayers. If someone age 55, paying income tax at 40%, pays £8,000 into a pension, the government increases that to £10,000 with basic-rate relief, with a further 20% tax rebate given on completing a tax return.They are allowed to withdraw 25% of the pot as a tax-free lump sum. Allowing for this £2,500 withdrawal, and the £2,000 tax rebate, they then have a sum of £7,500 in the pension for a net contribution of £3,500. And the clear drawback of Isas is, of course, the temptation to fritter away the fund before retirement. A pension can only be drawn after the age of 55, whereas withdrawals can be made at any time from an Isa."