ISA or Pension Pot

Catbonkers

Hi All, 
Newby here, I'm looking for advice,  I have a sum of money sitting in an Aviva ISA and wondered if it might work better for me to start a pension pot? I am 66yrs old and am currently drawing my state pension. I work part time as well. My spouse has a very large pension pot in their name only ( although I am the named beneficiary)

masonic

In short, probably yes. You will be able to get tax relief and you would be able to access the money (treated as income and taxable, but with 25% tax free). So overall the tax free portion will get a boost - free money.

Eyeful

I do not know about your personal circumstances. General guidance is:

1. Use tax shelters where you can.

2. Pensions for long term investing.
 As a basic tax payer if you put £80 and get tax relief of 20%, you get £100 to invest. That a £20 gain straight away, something you do not get with an ISA.

3. Pension money is not taxed on the way in but on the way out.
   ISA money has already been taxed, so is not taxed on the way out.

4. Any money you will need within 5 years should be in a Cash ISA savings account protected up to £85k by the FSCS.

5. If you are considering investing, look into  a Low cost Multi Asset Fund, with a share/bond split or share risk split you are comfortable with.
https://monevator.com/passive-fund-of-funds-the-rivals/

Albermarle

It is easy to open a new pension online. Any contributions you make will have basic rate tax relief added to them by the pension providers.
However the amount you can add is constrained by your earnings income ( state pension income does not count)

So if you earn £5000 per tax year, you can add £4000 and £1000 basic rate tax relief will be added. 

kimwp

Eyeful said:

I do not know about your personal circumstances. General guidance is:

1. Use tax shelters where you can.

2. Pensions for long term investing.
 As a basic tax payer if you put £80 and get tax relief of 20%, you get £100 to invest. That a £20 gain straight away, something you do not get with an ISA.

3. Pension money is not taxed on the way in but on the way out.
   ISA money has already been taxed, so is not taxed on the way out.

4. Any money you will need within 5 years should be in a Cash ISA savings account protected up to £85k by the FSCS.

5. If you are considering investing, look into  a Low cost Multi Asset Fund, with a share/bond split or share risk split you are comfortable with.
https://monevator.com/passive-fund-of-funds-the-rivals/

At 66, presumably a pension doesn't need to be for long term investing?

eskbanker

Eyeful said:

I do not know about your personal circumstances. General guidance is:

1. Use tax shelters where you can.
OP is seeking to choose between the two most prominent tax shelters, so knows this already.

2. Pensions for long term investing.
 As a basic tax payer if you put £80 and get tax relief of 20%, you get £100 to invest. That a £20 gain straight away, something you do not get with an ISA.

3. Pension money is not taxed on the way in but on the way out.
   ISA money has already been taxed, so is not taxed on the way out.
Points 2 and 3 would probably benefit from being combined to give the full picture, i.e. £100 in an ISA can be accessed as £100, but if paid into a pension would receive tax relief to £125, but then 'only' £106.25 after basic rate tax when accessed, ignoring growth on both sides of the equation.

4. Any money you will need within 5 years should be in a Cash ISA savings account protected up to £85k by the FSCS.
Cash or low risk options are also available within the pension wrapper.

5. If you are considering investing, look into  a Low cost Multi Asset Fund, with a share/bond split or share risk split you are comfortable with.
https://monevator.com/passive-fund-of-funds-the-rivals/
This would apply to both the ISA and pension options, so doesn't really assist the decision between them.

Comments inline above - OP provides enough information to be somewhat less generic than you have been!

Eyeful

kimwp said:

At 66, presumably a pension doesn't need to be for long term investing?

You would assume so.
However, on the radio this morning they announce the death of a WW2 veteran who was at least 100 years old! 

Albermarle

kimwp said:

Eyeful said:

I do not know about your personal circumstances. General guidance is:

1. Use tax shelters where you can.

2. Pensions for long term investing.
 As a basic tax payer if you put £80 and get tax relief of 20%, you get £100 to invest. That a £20 gain straight away, something you do not get with an ISA.

3. Pension money is not taxed on the way in but on the way out.
   ISA money has already been taxed, so is not taxed on the way out.

4. Any money you will need within 5 years should be in a Cash ISA savings account protected up to £85k by the FSCS.

5. If you are considering investing, look into  a Low cost Multi Asset Fund, with a share/bond split or share risk split you are comfortable with.
https://monevator.com/passive-fund-of-funds-the-rivals/

At 66, presumably a pension doesn't need to be for long term investing?

The average life expectancy of a 66 year old is around 20 years . That means 50% will live longer than that.

Catbonkers

Eyeful said:

kimwp said:

At 66, presumably a pension doesn't need to be for long term investing?

You would assume so.
However, on the radio this morning they announce the death of a WW2 veteran who was at least 100 years old! 

I had a Grandparent who lived to 103, I’m thinking long term, if I’ m blessed, it’s a lottery

Eco_Miser

kimwp said:

Eyeful said:

I do not know about your personal circumstances. General guidance is:

1. Use tax shelters where you can.

2. Pensions for long term investing.
 As a basic tax payer if you put £80 and get tax relief of 20%, you get £100 to invest. That a £20 gain straight away, something you do not get with an ISA.

3. Pension money is not taxed on the way in but on the way out.
   ISA money has already been taxed, so is not taxed on the way out.

4. Any money you will need within 5 years should be in a Cash ISA savings account protected up to £85k by the FSCS.

5. If you are considering investing, look into  a Low cost Multi Asset Fund, with a share/bond split or share risk split you are comfortable with.
https://monevator.com/passive-fund-of-funds-the-rivals/

At 66, presumably a pension doesn't need to be for long term investing?

Quite right, despite what other posters have mentioned about longevity.

You can pay money in, get the 25% uplift, withdraw it, and only pay tax on 75% of it, or less if it's covered by your personal allowance. No actual investment at all. Particularly good deal for non-earners, who still get the uplift on £2880 to £3600.

poolboy

The above comment re maxing out tax sheltered investments is spot on, I do both to a sipp and isa, as both grow tax free and compound up quite nicely.  A key incentive is one or other may be capped by age or value at some time , so take advantage while you can before any rules change.