Pension or ISA?

HI, I have increased my hours at work so have a little extra monthly income. Should I put it into my existing savings (a cash ISA) or top up my teachers pension? I cannot pay any more into my state pension. Or should I put it into a shares ISA as I have none? Thank you in advance for your thoughts

Comments

  • Savvy_Sue
    Savvy_Sue Posts: 46,021 Forumite
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    I'd have thought that in order to advise you properly, you'd need to answer a whole heap of questions, from your attitude to risk to your age and household situation ...
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  • Keep_pedalling
    Keep_pedalling Posts: 16,620 Forumite
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    edited 27 January 2022 at 12:44AM
    If it a choice between the 2 of the the pension wins hands down. Frankly cash ISAs have been pointless for a long time. If you are a basic rate tax payer the first £1000 of interest you earn outside an ISA has a 0% tax rate, but even if you earn more than that the rate you get outside an ISA are higher which more than offsets any tax you might pay on it. 

    Paying into a pension will also get you a 20% uplift via tax release so for every pound you pay in increases your pot by £1.20.


  • Paying into a pension will also get you a 20% uplift via tax release so for every pound you pay in increases your pot by £1.20.

    It's actually better than that.

    For every £1 you contribute (to a relief at source pension like a SIPP or personal pension) then the pension company adds 25% so your £1 becomes £1.25 in the pension.

    That equates to 20% tax relief (£1.25 x 20% = £0.25).

  • Of course, people who have larger pensions may be closing in their Life Time Allowance (LTA) and shift contributions from pensions to ISAs. 
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  • No brainer: contribute to any public authority pension - if you want proof post this question on the Pensions forum.

    Cash ISA is a no-no unless you are near your Life Time Allowance of 1 million + for contributions to a pension.
  • Kim1965
    Kim1965 Posts: 550 Forumite
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    You might consider a Sipp, this could give you more flexibility if you wish retire before state pension age. Depends on many factors you are yet to disclose
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    Mortgage free? 
  • mark55man
    mark55man Posts: 7,924 Forumite
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    Buying extra pension from the TPS would provide a guaranteed extra income when you are retired, and I believe its not money wasted if you don't make it to pension age (sorry)

    Putting the money in a SIPP or other personal pension vehicle may give you access to better investment returns (or worse ones) but has more flexible withdrawal options (when 55 or a bit later if you are younger)

    At a time of high inflation I would not be doing anything that involved keeping cash unless you could foresee a short term need.

    Plus as Thurglemir said, if you have a mortgage a lot of people take great comfort from seeing that gone, even though others do not think its the best use of cash at the moment
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  • Daliah
    Daliah Posts: 3,792 Forumite
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    Sidtrash said:
    I cannot pay any more into my state pension. 
    @Sidtrash, can you clarify what you mean by that - are you saying you got your personal state pension forecast and it states that you are getting the maximum new state pension, £179.60 a week ?

    Sidtrash said:
    HI, I have increased my hours at work so have a little extra monthly income. 
    In future, people with 35 NI years will be entitled to the maximum new state pension but this doesn't mean you stop paying National Insurance once you have 35 NI years. As long as you earn more than £120 a week from an employment, and as long as you are below state pension age(*), you are paying National Insurance. This is just a tax on earnings, doesn't get saved for your use in later life, and as such you don't "pay into" a state pension. National Insurance buys you entitlement to a range of benefits, amongst them the state pension. Your state pension amount is essentially unrelated to how much you paid in National Insurance, as it is calculated based on the NI years a person has. Some people pay more for an NI year than others, yet an NI year is worth the same for everyone. Most people have more than 35 NI years by the time they reach their state pension age.

    * new from April this year: everyone working, even those above state pension age, will pay an extra 1.25% National Insurance.
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