ISA vs Pension contributions?

6 Posts

I am 57 and have recently got back into employment in the UK after living overseas. I am a Higher rate tax payer, and I am aware I need to keep my income below 100K due to the gradual loss of my tax free allowance when above this.
My question is that I have savings that are now attracting interest that will be taxed. I would usually put 20k into an ISA on the 6 April to reduce this tax, but am I better putting money into a pension and attracting an immediate 40% uplift but paying tax on withdrawal at age 65+ or am I better putting the money into an ISA and never paying tax on the money?
I am currently 57 so have 8 years until retirement.
My question is that I have savings that are now attracting interest that will be taxed. I would usually put 20k into an ISA on the 6 April to reduce this tax, but am I better putting money into a pension and attracting an immediate 40% uplift but paying tax on withdrawal at age 65+ or am I better putting the money into an ISA and never paying tax on the money?
I am currently 57 so have 8 years until retirement.
0
Latest MSE News and Guides
Childcare budget boost
More support for children from nine months and those on Universal Credit
MSE News
Replies
There is a limit of £40K on how much can be added to a pension in a tax year. This includes your contributions, tax relief and employer contributions. You can carry forward some unused allowances from previous years, but you need to have had a UK pension active in those years so that might rule you out.
You can normally retire when you want/can afford it.
The state pension for you will start at 67 I think
Other pensions can be taken at 55, so anytime from now for you.
Caveat, I accept some people enjoy their work and don’t want to retire. I enjoy mine, but I’d still rather be doing other things.
They do however reduce your adjusted net income, which is what your Personal Allowance is based on.
And increases the amount of your basic rate band so more income is taxed at 20% and less at 40%.
Thats difficult to quantify, since I worked in the UK for many years prior to moving overseas and have been working in the UK the last full tax year. I have over the years paid much more in tax than the 40% uplift I am looking at.
Strange as it may sound I actually enjoy what I do for a living and am happy to work until I reach 65, which in my profession is the age that I have to retire, hence the 8 years.