Pension top up or ISA

Morsey1970

Hi all I am looking for advice on whether to top up my pension pot or start an ISA. 
I am 50 years old and have only a pension pot of £110,000 to date. I am thinking of upping my contributions but it doesn't make that much of a difference to my pot, with an expected retirement age of 60yrs, so 10 yrs to get my act together. My other option was to start an isa just now and then do the same next and the year after that, so when I am 55yrs I will have 5-10yr  fixed term isa in place, so when I retire at 60yrs, for the next 5yrs I will be able to top up my pension pot with my isa, any advice please. 

barnstar2077

When you put money in your pension you get some free money.  However you are restricted as to when you can access that money.  If you have no emergency fund or savings to speak of, what about putting a percentage of your money into both, with the lions share going to the pension?  You say it doesn't make much of a difference, but ten years is long enough to make a real difference to your quality of life when you retire.  Will you be mortgage free by then, do you have any other debts?

barnstar2077

I don't see the logic of not putting money into your pension now in order to put it in after you have retired.  Surely you would just miss out on ten years of potential growth by waiting?

dunstonh

I am thinking of upping my contributions but it doesn't make that much of a difference to my pot, with an expected retirement age of 60yrs, so 10 yrs to get my act together.

Are you really in a position to retire at 60 and fund the gap until state pension age?

 My other option was to start an isa just now and then do the same next and the year after that, so when I am 55yrs I will have 5-10yr 

Changing tax wrapper wont improve things.  If you pay the same amount into an ISA you get back even less than the pension.    Pension trumps ISAs in most cases nowadays.    

Morsey1970

barnstar2077 said:

When you put money in your pension you get some free money.  However you are restricted as to when you can access that money.  If you have no emergency fund or savings to speak of, what about putting a percentage of your money into both, with the lions share going to the pension?  You say it doesn't make much of a difference, but ten years is long enough to make a real difference to your quality of life when you retire.  Will you be mortgage free by then, do you have any other debts?

Yes I will be mortgage free by 54 yrs of age, so 6 yrs to top up. 

Morsey1970

barnstar2077 said:

When you put money in your pension you get some free money.  However you are restricted as to when you can access that money.  If you have no emergency fund or savings to speak of, what about putting a percentage of your money into both, with the lions share going to the pension?  You say it doesn't make much of a difference, but ten years is long enough to make a real difference to your quality of life when you retire.  Will you be mortgage free by then, do you have any other debts?

Do u recommend changing my pension from medium to high risk. 

Morsey1970

dunstonh said:

I am thinking of upping my contributions but it doesn't make that much of a difference to my pot, with an expected retirement age of 60yrs, so 10 yrs to get my act together.

Are you really in a position to retire at 60 and fund the gap until state pension age?

 My other option was to start an isa just now and then do the same next and the year after that, so when I am 55yrs I will have 5-10yr 

Changing tax wrapper wont improve things.  If you pay the same amount into an ISA you get back even less than the pension.    Pension trumps ISAs in most cases nowadays.    

Do u recommend changing from medium risk to high risk for the next 10yrs?

barnstar2077

As people get closer to needing the money they normally reduce the risk of some of their investments, as they do not want to be taking money out if there has been a down turn in the markets.

dunstonh

Morsey1970 said:

dunstonh said:

I am thinking of upping my contributions but it doesn't make that much of a difference to my pot, with an expected retirement age of 60yrs, so 10 yrs to get my act together.

Are you really in a position to retire at 60 and fund the gap until state pension age?

 My other option was to start an isa just now and then do the same next and the year after that, so when I am 55yrs I will have 5-10yr 

Changing tax wrapper wont improve things.  If you pay the same amount into an ISA you get back even less than the pension.    Pension trumps ISAs in most cases nowadays.    

Do u recommend changing from medium risk to high risk for the next 10yrs?

Can you afford to?   You dont appear to have much in financial planning for retirement and want to retire a long time before the state pension kicks in.   Do you really have that capacity for loss?

Changing risk level will not be a magic bullet.  The thing that makes the difference the most is what you pay towards it.

Are you really planning to retire at 60?    In very simple and crude terms, take what you currently earn a year.  Deduct the cost of the mortgage and multiply that by 7 years.  This is a ballpark for what you need to have put aside to fund the gap until state pension kicks in.   Do you have that money?    Can you build up that money in the next decade on top of increasing your pension to cover post state pension age?

steampowered

As you are saving for retirement, the decision as to whether you invest through a pension or an ISA will depend on the differing tax treatments.

- If you invest into a pension, you will get tax relief when you pay the money in. This could be worth an instant 20% uplift, or 40% if you are a higher rate tax payer. You don't get tax relief when you pay the money in with ISAs.

- Pension income can be subject to income tax when paid to you in retirement. ISAs on the other hand are tax free on withdrawal. However, given your retirement savings, it sounds like your income in retirement is going to be below the £12,500 personal allowance, in which case you won't be paying income tax in retirement.

It sounds like in your situation a pension is going to be the clear winner.

As others have said, it sounds like you'll be mostly relying on the state pension which is about £9,100 per year, assuming you qualify for the full state pension. If you want more income than that you have a lot more saving to do.

Malski

I'm in a similar position, I am 51 and want to retire aorund 60 to 62. I currently have £105,000 in a private pension, its dropped since COVID, but I expect it to slowly rise back up to around the £115,000 mark where it was before hand.  I am paying £100 a month into this and in around 10 years I'm hoping I can take around £7,000 a year from my pension.  I think they say for every £100,000 you get roughly £5,000 a year.  I would not take a lump sum as would prefer to have more weekly, monthly pension coming in.  On top of that I have a Stocks and Shares ISA too, currently that is at £42,000 so I am looking to have enough to take £9,000 a year from retiring to cover the years until I receive the state pension. 

I'm currently paying £300 a month into the ISA and £100 into my pension but I may start altering them in time so the pension is getting more than the ISA.

Luckily I am also mortgage free and totall y debt free too.