S&S ISA or Pension

ARandomMiser

I have some cash ISAs maturing this year (about £25k) and was going to move them to a S&S ISA with Fidelity (not the cheapest but I have been with them for years).

However a colleague at work suggested I consider paying them into my pension. I am a higher rate tax payer so I would get higher rate tax relief on these but, in the future, due to other investments I only expect to only pay lower rate tax when withdrawing from my pension.

I am not overly savvy with these things and wondered would it be better to move them to my pension or an S&S ISA?

Thanks for any suggestions or advice

chockydavid1983

If you definitely won't need the money before you can access it in a pension, it makes sense to contribute enough to take you out of higher rate tax.

AnotherJoe

You get (crudely) a free 70% boost if the money is in a pension in your circumstances, compared to an ISA.

Lets say you earn £100. After tax and NI its about £50. Thats £50 to go into an ISA.
Or £100 in your pension (possibly plus more if you get NI relief as well).
When you take that £100 out of your pension, you'll get about £85 after tax.

£50 or £85 ... hmm, tough question

The only downside is its locked up till 55 or later. Other than that pension wins hands down.

(And, many think this generous treatment of high tax rate payers wont last indefinitely. So take it whilst its going you can always put into an ISA later)

ColdIron

For retirement pension beats ISA due to the tax rebate. The cost is you can't access it until 55. Your pension provider will claim the basic rate portion direct from HMRC but you will have to claim the balance yourself. Are you a little bit into the higher rate or a lot? You can always 'repatriate' it into an ISA when you retire, particularly if you take your tax free lump sum

ARandomMiser

Thanks for the responses.
For completeness I am over 55 already - but I won't need the money for a few years.
Also it is money I already have in a Cash ISA which I want to put in either a S&S ISA or a Pension.

ColdIron

If you can already access your pension there isn't much downside. When I was around 55 and on HR tax I maxed out my annual allowance for 3 years as it was the best game in town

If you don't have immediate need of the income and are thinking of going into drawdown you could phase the process to free up just enough TFLS to fit into an ISA for a few years

The point regarding the full rebate for HR tax is well made and the annual allowance is also a big juicy fruit in the eyes of many Chancellors so maybe make hay while the sun shines?

Pincher

You can now put £20k into an ISA a year.

I would grab as much tax rebate as I can with the cash. You can then draw down 25% lump sum at the time of your choosing, and stuff it into an ISA over a couple of years.

ARandomMiser

Thanks everyone for all your thoughts.

AnotherJoe

ARandomMiser wrote: »

Thanks for the responses.
For completeness I am over 55 already - but I won't need the money for a few years.
Also it is money I already have in a Cash ISA which I want to put in either a S&S ISA or a Pension.

It still works the same way as regards earnings. So if you have £8k ina cash isa (or under the mattress etc, e.g. The source doesn't matter as long as it's not another pension ) and pay that into a SIPP it will be bumped up to £10k and then you'll get a £2k tax rebate as well. So your £10k in your SIPP cost you £6k.

It's also quite nice because you can regard it as a nifty trick to use time travel to get high rate relief. E.g. Say you earned that money 3 years ago when you were not a high rate payer. If you put it into a SIPP then, you wouldn't get the extra rebate. Now you are, you can get that by moving it so it's the same as bumping up your ISA amount, it just happens to be in a pension instead of an ISA.

The fact you are over 55 makes it even better as you aren't locking it away for years which is the one main downside of ISA vs pension.