Pension Vs Savings Accounts

nezzysaver

Hi All,

My dad is currently wondering which is the better option,
He has 6K avaliable and is wondering whether to,

1. Put it into an ISA, 3K before April 3K after.

2. Add it to his current pension?

Thanks

dunstonh

Savings accounts are good for short term money. Not really any good for long term retirement provision.

He needs to consider what he wants with this money. If its long term growth for capital provision in retirement then a stocks and shares ISA will be best. If its long term growth to provide an income in retirement then a pension is best. If its cash that is needed in the next 5 or so years then a cash ISA is best.

Thats a simplistic answer based on limited information and there are times you can do an S&S ISA or pension for other reasons.

EdInvestor

There is a 3rd option:

Use the investment part of the ISA (4k this year, 3.6k next when the cash part of the ISA goes up to 3.6k)

This money would be invested in the same way as if it was put in a pension, but you pay no tax on the income when you withdraw it (pension income is taxable).You can take out the ISA capital any time, whereas money put into a pension can never be taken out again.

Retired_I.F.A.

and then theres the simpler still answer...

Seeing as he's contemplating putting it into his pension it's fair to assume he wants to save for retirement and though they vary there is no better investment than a pension plan.

EdInvestor

Retired_I.F.A. wrote: »

there is no better investment than a pension plan.

This depends on an individual's circumstances and is also a matter of opinion.

Some people do not like the idea of losing control of their income and handing over their capital to an insurance company.It is also quite easy to lose out on the tax front by choosing a pension rather than an ISA.

Not a simple matter at all.

dunstonh

Perhaps the better way of phrasing pensions is that nothing else [conventional] will beat a pension for provision of income in retirement after the age of 60.

Pensions themselves can be bettered by ISAs and collectives and even investment bonds under the right circumstances depending on needs. However, when it comes to income only, pensions are best. This is why a mix and match approach is so often the best course of action.

Often the biggest mistake an inexperienced investor will make is not realising that investing with a pension is identical to ISAs and unit trusts. This opinion has formed on the back of legacy products from the days when the tied agent called round and the pension was a single fund product, usually in with profits.

bigbloke45

nezzysaver, you ask what is your dad's better option, but you havn't told us what his objectives are.

Better to get some clear goals/objectives first, then explore the options.

EdInvestor

dunstonh wrote: »

Often the biggest mistake an inexperienced investor will make is not realising that investing with a pension is identical to ISAs and unit trusts. This opinion has formed on the back of legacy products from the days when the tied agent called round and the pension was a single fund product, usually in with profits.

Quite so.The common accompanying error is thinking that a pension is "safe", ie guaranteed in some way.

Not so for many a long year.