Pension or ISA for Retirement Savings

Makemydeal

Can I start by saying, I'm not in financial services. These are my simple observations of my pension options. I've made a comparison list for debate.
Pensions; Tax Free savings ISA; Tax Free savings.
Pensions; percentage of earnings. ISA; Max £20k p/a
Pensions; Accessed at 67 (Drawdown from 55, but with tax to pay) ISA; Full access.
Pensions; annual management fees. ISA; No fees
Pensions; Very Expensive financial advice needed to sort out a maturing pension. ISA; No fees.
From my experience, the complicated nature and choice of pensions is a problem, deliberately created by the financial institutions. You then need to pay them to advise you how to solve the problems they created. An ISA is very easy to sort, with no hidden fees. Your money maybe won't grow as much, but you get it all when ever you want.
Most people who take the pension option will pay tax on it. This diminishes the better return you may have got. ISA is always tax free.
The answer may not be as clear cut as you might think? 

Marcon

Makemydeal said:

Can I start by saying, I'm not in financial services. These are my simple observations of my pension options. I've made a comparison list for debate.
Pensions; Tax Free savings ISA; Tax Free savings.
Pensions; percentage of earnings. ISA; Max £20k p/a
Pensions; Accessed at 67 (Drawdown from 55, but with tax to pay) ISA; Full access.
Pensions; annual management fees. ISA; No fees
Pensions; Very Expensive financial advice needed to sort out a maturing pension. ISA; No fees.
From my experience, the complicated nature and choice of pensions is a problem, deliberately created by the financial institutions. You then need to pay them to advise you how to solve the problems they created. An ISA is very easy to sort, with no hidden fees. Your money maybe won't grow as much, but you get it all when ever you want.
Most people who take the pension option will pay tax on it. This diminishes the better return you may have got. ISA is always tax free.
The answer may not be as clear cut as you might think? 

Since you've said nothing about your objectives, attitude to risk, age and a host of other 'need to know before commenting' items, I'm not sure what you are hoping to achieve? The answer will change depending on those essential components of the argument.

You've also got errors in your 'comparison list' eg

• You've ignored the tax relief on amounts contributed to a pension; ISAs have no corresponding relief. 
• ISAs aren't necessarily as fee-free as you believe. See eg https://www.ajbell.co.uk/faq/what-are-charges-my-stocks-and-shares-isa
• You don't necessarily need advice to sort out a 'maturing' pension.

If you google on 'ISA v pension' you'll find endless comments and observations, so not really any value to starting a debate here when it has already been done to death on the internet.

Makemydeal

in response to Marcon post 4/12/24 1;47pm
I am 61, in good health, and I retired a year ago. I am living comfortably on my savings. I have a private pension, and will be converting it to a Drawdown. Then taking a monthly direct debit from it. After 25% tax free, I can withdraw my annual tax free allowance, because I have no other income. If I left my pension in until 67, when I get the full new state pension, I would be taxed on income above my tax free allowance.
My post was referring to a cash ISA. I believe pensions over a certain amount and with guarantees, you must pay for advice. You get tax relief  paying in, but you pay tax when you take it. My post was about drawing attention to pension costs and tax. You may have a bigger pot at retirement, but fees and tax may make it worse than an ISA after 5 years of retirement? It would be interesting to see a comparison, when costs and tax are included?

Marcon

Makemydeal said:

in response to Marcon post 4/12/24 1;47pm
I am 61, in good health, and I retired a year ago. I am living comfortably on my savings. I have a private pension, and will be converting it to a Drawdown. Then taking a monthly direct debit from it. After 25% tax free, I can withdraw my annual tax free allowance, because I have no other income. If I left my pension in until 67, when I get the full new state pension, I would be taxed on income above my tax free allowance.
My post was referring to a cash ISA. I believe pensions over a certain amount and with guarantees, you must pay for advice. You get tax relief  paying in, but you pay tax when you take it. My post was about drawing attention to pension costs and tax. You may have a bigger pot at retirement, but fees and tax may make it worse than an ISA after 5 years of retirement? It would be interesting to see a comparison, when costs and tax are included?

You're comparing apples and pears if you are looking at a cash ISA v most DC pension investment options.

Advice is often recommended but not usually a requirement - I think you might be confusing this with transferring a pension with a transfer value of £30K+ and 'safeguarded' benefits?

Costs and tax (especially personal tax rates pre and post retirement, which could be as extreme as higher rate and nil!) vary hugely, so maybe some googling would get you the examples you are seeking, tailored to your particular situation?

Albermarle

Tax benefit of pension vs ISA is an absolute minimum of 6.25% but can be a lot more in the right circumstances.
There are hundreds of threads on the forum on the topic. 

Cobbler_tone

If I put £315 in my pension, which is worth £945 (inc employer contributions) and costs me £170 (ish) net.

If I put £315 in my ISA, it costs me £315 from my net pay.

dunstonh

Pensions; Accessed at 67 (Drawdown from 55, but with tax to pay) ISA; Full access.

Pension access is 55 rising to 57.

Pensions; annual management fees. ISA; No fees

Pensions and ISAs have the same fees.

Pensions; Very Expensive financial advice needed to sort out a maturing pension. ISA; No fees.

Not correct.  You can use an adviser or DIY with both the pension wrapper or ISA wrapper (or unwrapped).   The only wrappers that need advisers to set them up is offshore bond and onshore bond.

From my experience, the complicated nature and choice of pensions is a problem, deliberately created by the financial institutions.

As ISAs and pensions share the same investments and same charges, any perception of complication is with you rather than the providers.

. You then need to pay them to advise you how to solve the problems they created. 

Very few providers have an advice arm.  

An ISA is very easy to sort, with no hidden fees.

Same as pensions (and other wrappers)

 Your money maybe won't grow as much, but you get it all when ever you want.

As ISAs and pensions share the same investments, the return would be the same if you used the same investments in both.

Most people who take the pension option will pay tax on it. This diminishes the better return you may have got. ISA is always tax free.

However, you end up paying more tax with an ISA than you do a pension.

My post was referring to a cash ISA. 

Cash ISAs are for short term savings/emergency fund.  They are high risk for long term provision as you are pretty much guaranteeing shortfall risk and inflation risk.  However, you can hold cash in a pension if needed.

Makemydeal

I have done a search for a comparison (ISA v Pension, Which one should you invest in? - This Is Money website)
The 2 options are close in the money you would get. If IFA fees are added, or you want access to your money, an ISA could be a better choice?

dunstonh

Makemydeal said:

I have done a search for a comparison (ISA v Pension, Which one should you invest in? - This Is Money website)
The 2 options are close in the money you would get. If IFA fees are added, or you want access to your money, an ISA could be a better choice?

You are paying charges on a cash ISA too.  Or any other savings account.  They are just implicit rather than explicit.  i.e. one is fully disclosed and the other you don't know.      Charges are pretty small in the scheme of things nowadays.  There are still some greedy options but people paying those fees do so by choice and they could be avoided if they wanted to.

Marcon

Makemydeal said:

I have done a search for a comparison (ISA v Pension, Which one should you invest in? - This Is Money website)
The 2 options are close in the money you would get. If IFA fees are added, or you want access to your money, an ISA could be a better choice?

It could. Or it might not be...horses for courses.

Albermarle

dunstonh said:

Pensions; Accessed at 67 (Drawdown from 55, but with tax to pay) ISA; Full access.

Pension access is 55 rising to 57.

Pensions; annual management fees. ISA; No fees

Pensions and ISAs have the same fees.

Pensions; Very Expensive financial advice needed to sort out a maturing pension. ISA; No fees.

Not correct.  You can use an adviser or DIY with both the pension wrapper or ISA wrapper (or unwrapped).   The only wrappers that need advisers to set them up is offshore bond and onshore bond.

From my experience, the complicated nature and choice of pensions is a problem, deliberately created by the financial institutions.

As ISAs and pensions share the same investments and same charges, any perception of complication is with you rather than the providers.

. You then need to pay them to advise you how to solve the problems they created. 

Very few providers have an advice arm.  

An ISA is very easy to sort, with no hidden fees.

Same as pensions (and other wrappers)

 Your money maybe won't grow as much, but you get it all when ever you want.

As ISAs and pensions share the same investments, the return would be the same if you used the same investments in both.

Most people who take the pension option will pay tax on it. This diminishes the better return you may have got. ISA is always tax free.

However, you end up paying more tax with an ISA than you do a pension.

My post was referring to a cash ISA. 

Cash ISAs are for short term savings/emergency fund.  They are high risk for long term provision as you are pretty much guaranteeing shortfall risk and inflation risk.  However, you can hold cash in a pension if needed.

Just one point worth a comment.

Pensions and ISAs have the same fees.

The very low cost DIY providers, do add extra fees for SIPPs as opposed to ISA's .
Clearly if your ISA fee is zero or £10 pa , you need to charge more for the pension due to the extra admin.

However as you say fees are only a small part, and peanuts compared to the tax benefits of pensions.