ISA vs Pension contributions?

BattyJ

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.

MX5huggy

Pension beats ISA in your circumstances. Especially if you pay 20% tax on pension income once you retire. But with what appears to be so much money, after contributing the maximum to pension I would expect £20k to ISA as well. 

NoMore

Pensions are more tax efficient than ISA's providing you are not going to have a higher marginal rate of tax when you withdraw than when you contributed (unlikely).

Albermarle

40% tax relief on pension contributions, is the gift that never stops giving ( although one day it might be stopped by the Treasury)
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. 

I am currently 57 so have 8 years until retirement.

There is no specific retirement age in the UK. 
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. 

dunstonh

Pension beats ISA in most circumstances. In your case, even more so.

or am I better putting the money into an ISA and never paying tax on the money?

You have paid tax on it though haven't you?  i.e. the money built up from income that was taxed.

Dh6

If I’d have been on 100k plus for any substantial period of time, I’d already be retired lying on a beach somewhere.

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.

retiringtoosoon

Also to note, you can retire whenever you want( and can afford to): there’s no need to wait to 65!

jaypers

Pension all the way as most tax efficient solution. Just bear in mind that if you have ever drawn taxable income from any pension pots your maximum contribution is reduced from £40k to £4k a year. 

MEM62

retiringtoosoon said:

Also to note, you can retire whenever you want( and can afford to): there’s no need to wait to 65!

Yep, and I hope to go in a couple of years at the age of 63.  Not quite there financially yet so need a couple of more years to build the pot a little more and shorten the time between giving up a salary and SP age.    

Dazed_and_C0nfused

BattyJ said:

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.

Pensions are incredibly tax efficient in this situation however you might want to research exactly how they work as most pension contributions don't reduce your taxable income.

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%.

BattyJ

Thank you all for the input.

dunstonh said:

Pension beats ISA in most circumstances. In your case, even more so.

or am I better putting the money into an ISA and never paying tax on the money?

You have paid tax on it though haven't you?  i.e. the money built up from income that was taxed.

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.