S&S ISA as non-official pension

kyana

I am saving into a personal pension (self-employed) but after realising the government can change the age at which i can access this, i would like to put some savings into a stocks and shares isa to use should i wish to retire earlier than the official pension age (i'm late 20s and do not want to work to 70 as talk seems to be).
How can I best replicate the broad range of investments in a pension?

Thanks

Your_Hero

You won't have to work until you are 70. Currently you can access your private pension from 55 onwards, which is due to increase to 57 from 2028. It will be aligned so that it is 10 years before the state pensionable age. Based on your age, this will probably be 58. It can still change of course.

You need to be aware that a pension is a far better retirement vehicle because of the tax relief though. But it may be sensible to spread your eggs out and use an ISA too.

You can replicate your own pension funds by choosing a provider who will allow you to use those very funds. Alternatively, you can look at the underlying asset mix, and choose funds accordingly.

kyana

thanks. i'm not planning on ditching the pension, i'd just like to have a little put away which i can access sooner if needs be, primarily with the thought of retiring early.

dunstonh

I am saving into a personal pension (self-employed) but after realising the government can change the age at which i can access this, i would like to put some savings into a stocks and shares isa to use should i wish to retire earlier than the official pension age (i'm late 20s and do not want to work to 70 as talk seems to be).

A personal pension can be taken at any age between 55 and 75. It is going up to 57 but that is because the minimum personal pension age is 10 years less than the state pension age. So, in your late 20s, you are probably looking 58 or 59. Are you paying enough to realistically have 58/59 as your personal retirement age?

Dont mix up state pension age with personal provision.

How can I best replicate the broad range of investments in a pension?

easy. pensions and ISAs share the same investment options.

atush

Having a S&S isa is a great thing to do, but not for pension so much (as you dont get the tax relief which boosts compound growth.

Use the isa not to retire early (unless you want to retire earlier than 57/8) but more for other flexible long term reasons

Such as, house improvment/purchase, children, university expenses etc.

For retirement, i'd put in as much as possible. And as self employed, if you earn enough consider becoming an LC.

ViolaLass

If the OP pays 20% tax at the moment and will do again when drawing their pension, doesn't that effectively wipe out the tax gain on the pension contributions?

OP, I'm not saying ditch the pension! But I'm doing the same thing as you - part saving in a pension and part saving in an ISA, figuring that that way I will gain flexibility whilst still making sure that my personal allowance gets used fully once retired. Should I ever get to the point that I'm paying more than 20% tax, I will consider moving the ISA funds into my pension.

Your_Hero

ViolaLass wrote: »

If the OP pays 20% tax at the moment and will do again when drawing their pension, doesn't that effectively wipe out the tax gain on the pension contributions?

It does if it's a straight 20% tax on the whole pot because you will be taxing the capital as well as the growth. But as we live in a world where you get a 25% tax free cash, and generous personal allowance that increases every year, this is where you get the real value of the pension over an ISA, even for a basic rate payer.

This benefit is even greater for a higher/additional rate payer (who then becomes a basic/non tax payer in retirement) as you rightly say.

jem16

ViolaLass wrote: »

If the OP pays 20% tax at the moment and will do again when drawing their pension, doesn't that effectively wipe out the tax gain on the pension contributions?

It does, yes. It will gain on the tax free lump sum though.

OP, I'm not saying ditch the pension! But I'm doing the same thing as you - part saving in a pension and part saving in an ISA, figuring that that way I will gain flexibility whilst still making sure that my personal allowance gets used fully once retired. Should I ever get to the point that I'm paying more than 20% tax, I will consider moving the ISA funds into my pension.

Sounds like a good plan.

atush

ViolaLass wrote: »

If the OP pays 20% tax at the moment and will do again when drawing their pension, doesn't that effectively wipe out the tax gain on the pension contributions?

OP, I'm not saying ditch the pension! But I'm doing the same thing as you - part saving in a pension and part saving in an ISA, figuring that that way I will gain flexibility whilst still making sure that my personal allowance gets used fully once retired. Should I ever get to the point that I'm paying more than 20% tax, I will consider moving the ISA funds into my pension.

The pension scores over the isa in a couple of ways, the 25% TFLS as mentionned. Plus the tax relief adde to the pension (which isn't to the isa) will also grow with compound growth. So even invested int he same thing, the pension should still come out on top.

Then there is the retireing before pension age thing. With the pension (the money which is taxed ie the 75%) you could withdraw amounts up to your PA each year thuse getting even more of the pension tax free. After all, if the rest of your savings are in ISAs, they aren't taxed so the PA goes to waste

ViolaLass

atush wrote: »

The pension scores over the isa in a couple of ways, the 25% TFLS as mentionned. Plus the tax relief adde to the pension (which isn't to the isa) will also grow with compound growth. So even invested int he same thing, the pension should still come out on top.

But only for the lump sum, surely, since any income will be taxed (and if the capital has grown, so will the 20% that will be removed).

Also, you can only withdraw money from your pension after a certain age so ISAs win on flexibility.

I take everyone's point about the lump sum though. I'm certainly not advocating ISAs alone.

jem16

ViolaLass wrote: »

But only for the lump sum, surely, since any income will be taxed (and if the capital has grown, so will the 20% that will be removed).

That is correct.

Also, you can only withdraw money from your pension after a certain age so ISAs win on flexibility.

I take everyone's point about the lump sum though. I'm certainly not advocating ISAs alone.

I agree - a mixture of both is the best option. I use my pension to take up all my 40% income (knowing I will only pay basic rate tax in retirement ) and ISAs thereafter.