Higher Pension contributions V's S&S ISA

Sea_Shell

We did what you're thinking.

We still paid into pensions, but also put a decent amount in ISAs as we were planning a pre-55 retirement and wanted a pot to bridge the gap.


As it turns out, we've not touched a bean of that ISA money yet, and DH is now over 55 and in Drawdown.

So in hindsight, it was probably the wrong choice, in hard £ terms.   But it gave us that choice and flexibility and it's there if we need it.


ETA - DH has just reminded me that we made our choice before pension freedoms were a thing.   So we thought we'd have to bridge a much bigger gap.

kpk2000

I am currently saving both a S&S ISA and a SIPP to cover my bases as I’m lucky enough to have a DB which pays out half at 55 with re-deduction if taking before 60 and the rest at 58 earliest with a 68 NPA.

I want flexibility to retire at 55 if I want to, so currently trying to save 3 years salary min into the ISA and then another 2 years salary in a SIPP. I can then continue working (as a teacher) if I want to beyond 55 but if I want the option to leave my job I can then leave my DB for a few years to 58-60 and maximise the tax allowances.

 Having 3 years in an ISA gives me this option whereas the SIPP age will probably change to higher than 58 as I have little trust in government not raising it further. Probably not maximising the tax paying this way but I’m going to be paying tax in retirement anyway according to the DB projection.

lisyloo

Personally I wouldn’t be worried about LTA in your situation.
the 9.5% historical is not expected to continue (gains expected to be lower going forward) and you have to take out charges.
it’s also likely that LTA would rise over 10-15 years.
I don’t think you are anywhere close to worrying about it.

as I said tax is no brainier.
yes you have to pay tax in retirement, but if the uplift on the way is greater than the tax then that’s a no brainer.

the real issue here is leaving yourself enough access to cash before retirement both to live on and for both foreseen and unforeseen expenses (car/roof expiring, desperately wanting private medical treatment etc.).
so it’s always a balance.
in your shoes I’d be focusing of getting that balance right but wanting to put as possible into the pension

Anonymous101

Agree with the previous few posts about the efficiencies and drivers. Pension wins hands down on the tax front so putting as much into there as possible would be the most efficient to maximise returns. However there are a few risks that contributing some monies into an ISA would cover. Such as if you want to retire pre-pension access age, or that you reach LTA prior to retirement plus you also want to cover an unknown rule change either to access, contributions (to both ISA or Pension) or LTA.

I think its wise to have a reasonable pot in the ISA to cover this. Of course as you near retirement and these risks become more understood you could choose to back fill into the Pension and make use of any head room. Having a pot in the ISA just maintains a degree of flexibility which is never a bad thing especially as with some thought it's unlikely to cost you anything.

lg13mza

Thanks all.  Some very useful comments here.