Use cash to increase personal pension or S&S ISA?

SMcGill

So my early retirement from 57 to 65 will be partly be funded by a personal pension I have (touch wood). This currently has around £100k so it should be all tax free if I take £15k or so each year. As this income falls short of what I want as an income I’ve set aside enough cash savings to increase my income by roughly £15k a year. But obviously the value of my cash savings will gently erode in the face of inflation so I was wondering whether to either a) put as much as I can into my personal pension before I retire or b) put it into my S&S ISA. 

My assumption is that putting it into my pension is better?

barnstar2077

How old are you now please?

SMcGill

I’m 57 now and will still be 57 when/if I early retire next summer. 

Dazed_and_C0nfused

Have you checked your State Pension forecast?  Making sure you read past the likely headline of £175.20?

One advantage of the pension is that you get 25% added when you contribute but only 75% of the gross contribution is taxable.

So assuming you are able to contribute (financially and within the limits) say £10k then that becomes £12,500 in your pension and £10,625 after tax once withdrawn.  6.25% advantage over the ISA.

Albermarle

The pension is better as explained above , although the amount of your savings you can contribute and still get tax relief will depend on your earnings this year and any pension contributions made so far .
Also whether a pension or S&S ISA , you need to carefully consider how to invest it over a relatively short term period.

SMcGill

Thanks for the responses.
@Albermarle, I can see how the relatively short period over which I plan to use my personal pension (8 years) makes it vulnerable to swings in performance. For that reason I’m not completely ruling out buying a fixed term annuity for those years, just to avoid the risk of swings and to have absolute certainty in those early retirement years. The size of my personal pension (£100k now) means that the poor value of annuity is less of an issue for me than for people who have much bigger personal pension pots or longer terms needs. 

I hope that I can leave my S&S ISA untouched for several years and I will probably do the cowardly thing and transfer it into a cash ISA once I need to start using it.

@Dazed_and_confused thanks for confirming what my maths ability couldn’t ie that all things being equal, a pension is better than a S&S ISA, exactly 6.25% better in fact!

Albermarle

The 6.25% is actually a minimum tax benefit for a pension . For example if you were able to take the taxable income part below your personal tax allowance and therefore not actually pay any tax , then the benefit is significantly higher of course .
I can see how the relatively short period over which I plan to use my personal pension (8 years) makes it vulnerable to swings in performance. For that reason I’m not completely ruling out buying a fixed term annuity for those years,
I was thinking more to keep it invested but in relatively low risk ( not no risk ) balanced investments that should moderate the swings in performance , whilst hopefully providing enough growth to at least keep up with inflation. In the end it is a personal decision.