ISA or increase Monthly Personal Pension Contribution?

SueM64

I wonder if anyone could offer some advice. Both myself and my husband have an ISA each, they haven't really built up much over the past year or so. My husband has a private pension and we wondered whether it would be better to withdraw money from his ISA and increase his monthly contributions. He isn't anywhere near his maximum contribution amount. The last statement we received for his pension, which he has paid into for nearly 30 years, again didn't show too much growth on the previous year due to the current climate but we are thinking this money sat in an ISA would be better in his pension pot. He is 54 but doesn't plan to draw his pension at 55, preferring to wait for the climate to change before initiating his pension. Any advice would be greatly received. Thank you.:)

Linton

Insufficient information for me to understand what is going on so a few questions to start off with...

Is the ISA a cash ISA or stocks& shares ISA?

How much is in it? How much in the private pension? Do you have a significant emergency fund (say 6 months living expenses) in easily available cash?

You talk about not drawing pension at 55 but waiting for the climate to change - is he aiming to retire at 55 or soon after? If not why take the pension, and when does he plan to retire?

Does your husband pay basic rate tax or higher rate?

atush

Sorry, but we need more detail.

What pensions? What type (ie final salary or money purchase)

Isas? Cash or S&S?

S&S pensions and Isas. What are they invested in?

You say performance is poor but we dont knwo the facts. Poor performance can be due to things in your control or not. WE cant say untiil you give the facts.

Why no mention of you> And your pension?

jamesd

SueM64 wrote: »

He is 54 but doesn't plan to draw his pension at 55, preferring to wait for the climate to change before initiating his pension.

"Initiating"? That's potentially worrying. What do you mean by initiating? Buying an annuity, which would be pretty crazy at age 55 or so most of the time, compared to income drawdown?

What climate changes is he planning to wait for? While it's impossible to predict timing with any certainty, we've been in a bull run since early 2009 and it doesn't get much better than that to consider diversifying away from equities, before the inevitable, but timing unknown, next big drop happens.

Pensions can allow more investment choices than an ISA and have different tax treatment but for a person who is close to age 55 the pension normally wins because the pension lock-up ends at age 55, removing the primary disadvantage of the pension. then for a person paying in and withdrawing at basic rate income tax the pension route delivers 6.25% more money than the IS due to the pension tax relief. This gain increases if tax relief is at 40% or with salary sacrifice on the way in, with basic rate income tax on the way out.

Given his age and the tax benefit of the pension, even if no new money is available he can produce a gain buy using ISA money to pay into a pension, then replace it later with a pension tax free lump sum and new ISA contributions. Or he can pay out of normal income and you can subsidise income by drawing gradually on the ISA capital and/or investment returns as needed, an approach that is particularly suitable to those who have salary sacrifice schemes available at work.