Spend ISA savings while maxing pension contributions?

Peterrr

Hi. We're in our mid 50s and hoping to retire at 60. With 50k in ISAs I'm wondering if it makes sense to ramp up contributions to our workplace pension pots (both defined contribution) and use the ISA savings towards living expenses instead? 
My thinking being that the pension contributions would be boosted by the 21% income tax rate (Scotland) from the outset. We are unlikely to ever be higher rate tax payers in retirement.
Have I thought this through properly? Thanks for any thoughts

Dazed_and_C0nfused

Are your contributions via net pay (relatively unusual for DC pensions) or relief at source?

MX5huggy

Fundamentally yes. 

You might want to look at using a separate SIPP, because the work pension might have limited choice of investments or higher fees. 

Also depends on if the work pension is Salary Sacrifice, which would swing it back to being the better option. 

Presuming you are already matching up to the maximum the employer will match. 

PS I know nothing about Scottish Income tax and pensions.

You could retire and then as a couple get about £32000 per year from the pension with out paying tax £12570 of tax allowance plus 25% tax free. Which conveniently contributions of £50000 to create pots of £62500 nearly covers 2 years. 

You can only pay into a pension up what you earn in any year but as there is 2 of you £25k each is probably not an issue. 

Malthusian

On the face of it moving money from ISAs into pensions is attractive (assuming the lifetime allowance isn't an issue), as you get 20% (or 21% in your case) tax relief on the way in and can pay 15% / 15.75% tax on the way out. And you get tax-free growth and income either way.

The danger is in putting all your eggs in one tax wrapper. If you later need to make a large withdrawal which results in you having to pay higher rate tax, you could be worse off than if you'd kept the money in the ISA.

Pensions are also more inflexible than ISAs and are shackled to the member until death or divorce do them part, unless you withdraw them and pay income tax on them. This is particularly relevant if the Government changes the rules again on pension tax. Trying to anticipate future tax rule changes is a bad idea, but it is a good reason to keep diversity between tax wrappers.

As a general rule I would consider it if I had a lot of money in ISAs and moving some into the pension still gave me a good balance between the two. If you only have £50k in ISAs I would be more inclined to keep it in case a large lump sum was needed in future.

cloud_dog

Peterrr said:

Hi. We're in our mid 50s and hoping to retire at 60. With 50k in ISAs I'm wondering if it makes sense to ramp up contributions to our workplace pension pots (both defined contribution) and use the ISA savings towards living expenses instead? 
My thinking being that the pension contributions would be boosted by the 21% income tax rate (Scotland) from the outset. We are unlikely to ever be higher rate tax payers in retirement.
Have I thought this through properly? Thanks for any thoughts

We have been doing this for the last number of years, in essence moving ISA monies in to pensions. It works well for us (me) as a HRT payer benefitting from Salary Sacrifice.  Each year I sell an amount of investments, put it in a savings account, and use this money to subsidise the reduced salary income due to increased pension contributions (sacrificing down to NMW).

If you aren't paid under a Salary Sacrifice arrangement then you might find simply using the best (cheapest?) SIPP provider as the best option for you.

You obviously need to ensure the use of tax efficient vehicles meets your plans, your needs for access to the money, etc. 

xylophone

Have you both obtained State Pension Forecasts?

https://www.gov.uk/check-state-pension

Peterrr

Thanks all for the very useful advice and comments. To address some of the questions:
Both wife and I contribute via salary sacrifice, both maximise our employers' matching contributions, and are happy with the investment choices on offer in our schemes.
No danger of breaching the lifetime allowance (we wish!)
Malthusian - some good points for consideration thanks
State pension forecasts show we will both qualify for maximum state pensions

Sounds like I had a reasonably well thought out plan - first time for everything I guess! Thanks again

MX5huggy

Looking like a plan. 

As it’s Salary sacrifice your limit in contributions is likely to be making sure you still receive income equal to or over the National Minimum Wage which is £9.50 an hour or £19760 per year for a 40 hour week. 

Dazed_and_C0nfused

Both wife and I contribute via salary sacrifice, 

In which case you will automatically get 21% relief, albeit it personally saves you income tax it isn't added to the pension fund.

If you were making relief at source contributions your pension would benefit from the 20% pension tax relief, the additional 1% would come back to you as a personal tax saving.

Albermarle

Peterrr said:

Thanks all for the very useful advice and comments. To address some of the questions:
Both wife and I contribute via salary sacrifice, both maximise our employers' matching contributions, and are happy with the investment choices on offer in our schemes.
No danger of breaching the lifetime allowance (we wish!)
Malthusian - some good points for consideration thanks
State pension forecasts show we will both qualify for maximum state pensions

Sounds like I had a reasonably well thought out plan - first time for everything I guess! Thanks again

If you retire at 60 and then have no other taxable income until the state pensions arrive , then in those years you will still have your personal tax allowance ( £12570 in England , not sure about Scotland ) .
This means each tax year you can take from your pension , taxable income to this level but pay no tax . Plus you can take some of the tax free money .
So in this scenario the tax benefit of adding more to your pension is even better .

Dazed_and_C0nfused

Same PA in Scotland, they don't have powers to alter that, just the rates and rate bands for earnings/pension/rental income

Interest and dividends follow rest of UK rates.