pension or s&s isa

help50

I want to contribute more per month to retirement fund. I am basic rate taxpayer and there is no company pension scheme. I currently contribute to a pers pension with Scottish Life through their "moderately adventurous tracker lifestyle strategy". I want to either put more into this per month or into a s&s passive tracker ISA. Whatever, I will continue to contribute to existing pension, I just want to understand where the "extra" should be going. I assume the tax advantage of the pension means it is the way to go. However, the benefit of the ISA approach would be that I would have a bit more control of shifting contributions between funds.
I am interested in understanding where the s&s ISA comes into play, if the answer was always use a pension, there would be no market for s&s ISAs! What are the main points to consider in the different routes and rough guidelines to consider?
Many thanks!

DesG

They are only tax wrappers, they can hold the same investments.

Do you want the the tax paid on the way in or the way out, that is the main difference.

dunstonh

I just want to understand where the "extra" should be going.

You need to look at which best fits your needs and objectives (both with money going in and money coming out)

However, the benefit of the ISA approach would be that I would have a bit more control of shifting contributions between funds.

Pensions and ISAs share the same investment options. So, chosing where to invest from a funds point of view should not make any difference.

I am interested in understanding where the s&s ISA comes into play, if the answer was always use a pension, there would be no market for s&s ISAs!

Look at the maturity differences (when you need the money coming out). That is where the key difference is.

kidmugsy

How old are you?

help50

Thanks. I'm 50, not wanting money out until retirement which is likely in about 20 years (all things being equal).

atush

Do you have a cash emergency fund? When will your employer have to pay into a pension for you?

At 50, I would say look at pensions in the main if you have an emergency fund. AS the tax relief will help boost your fund, and if you retire a year or two before your SP (if you want to) you can receive income tax free up to your PA plus you get yoru TFLS.

However, if you dont have a good emergency cash fund, i'd build one then a S&S isa or all 3- pension, cash and S&Sisa together.

help50

Hi yes have emergency fund. Your last sentence reflects my question I guess - " all 3, pension, cash and ISA". Why pension and s&s ISA and, in what balance? My assumption is that pension gives me tax relief benefits, but is a managed strategy portfolio whereas the ISA lets me shift funds around and vary deposits into each, so more flexible.

kidmugsy

help50 wrote: »

My assumption is that pension... is a managed strategy portfolio whereas the ISA lets me shift funds around and vary deposits into each, so more flexible.

Nope. You get a slightly wider choice of investments in pensions, but for most purposes you can use identical investments in a SIPP or ISA if you want to. If you are in a pension that restricts your choice in a way you don't like, you can transfer to another provider.

The disadvantage of a pension is the fact that the money is alienated from you until you are 55, and is a hostage to political risks until then. The big advantage is that you may be able to draw out of it tax-free, on occasions when your income will be less than the Personal Allowance for income tax. An ISA would be handy if there's a chance that you'll want access to the money before 55. Of course, once you can get an employer contribution to a pension, the advantage shifts more towards pensions.

help50

Thanks, I guess it's maybe tax benefits v accessibility as key differentiators. That's useful thanks.

help50

I guess as well as DesG says, I need to think about the tax position. With the pension I get tax benefit of 20% going on but 75% of the fund would be taxed when I take it out. Whereas the ISA fund isn't taxed. I can see the benefits of the pension route if I am 40% tax payer, but not quite so clear as I am only a 20% payer?

xylophone

there is no company pension scheme.

When will there be?

https://www.gov.uk/workplace-pensions/about-workplace-pensions