Pension

nrsql

>> About 7000 of that will be tax free
I take it this assumes no other income?
Do your calculation take into account a state pension?
You are also assuming equal charges for ISA and pension wrapper which I guess depends on where you keep them.

I would guess that at higher income rates the ISA gets comparatively more profitable.

Don't know much about pensions as I consider them too risky.

Retired_I.F.A.

nrsql wrote: »

>> About 7000 of that will be tax free
I take it this assumes no other income?

correct.

Do your calculation take into account a state pension?

State pension has nothing to do with it. It's paid regardless of any savings or other pension plans..

You are also assuming equal charges for ISA and pension wrapper which I guess depends on where you keep them.

Yes James has assumed the yield is the same. Charges vary from providor to providor.

I would guess that at higher income rates the ISA gets comparatively more profitable.

Till you hit the 40% tax bracket yes but it will never overtake a pension and if you go into the 40% tax backet the gap gets bigger still as you get 40% tax relief. with the pension route.

I don't know much about pensions as I consider them too risky

Far more safer than any other form of saving actually it's what fund/funds the money is invested in that risk lies..

nrsql

>> State pension has nothing to do with it. It's paid regardless of any savings or other pension plans..
I was talking about this using up the tax free allowance in both cases so making the pension less favourable as the full tax free amount isn't available.

>> I would guess that at higher income rates the ISA gets comparatively more profitable.
I'm talking about income when taking the pension not when paying in.

>> Far more safer than any other form of saving actually it's what fund/funds the money is invested in that risk lies..
Can't you invest in similar funds in the ISA. The risk I am talking about is in the ISA/pension wrapper not the investment.

dunstonh

With unit trusts now being available on pensions, you can get identical charges for ISAs and pensions using the same funds. So, it is fair to assume identical charging structures when giving a like for like example.

From an income only point of view, the pension will beat ISA. That is normal and remember that is what a pension is for. Income provision.

In reality, a bit of ISA and pension is best the best option but if you are not going to be putting a lot away each month and you are concerned about income in retirement then really the pension does make the most financial sense.

nrsql

Take h-l for instance.
for an isa you get a rebate of some initial charges when buying a fund and a loyalty bonus.

There SIPP doesn't give the loyalty bonus and has an annual charge for some funds.

Is there somewhere else that is cheaper to buy funds in a pension than h-l or gives a loyalty bonus to work out to the same price as the ISA?

dunstonh

Is there somewhere else that is cheaper to buy funds in a pension than h-l or gives a loyalty bonus to work out to the same price as the ISA?

Scottish Widows and Transact can for larger portfolios as they factory gate charge the funds but have fund based discounts. (i.e. they remove the trail part from the amc but add in a fixed percentage which goes down as the fund value goes up). This makes them cheaper for larger portfolios.

Selestia(Skandia) allows selection of explict trail. So, on execution only cases the IFA can take 0.25% of the trail.

Then you have the smaller fund ranges on personal pensions and some of these can be cheaper than HL. Clerical Medical, AXA, Scottish Life, NU (although not sure if that contract is available nationally yet) to name a few.

EdInvestor

jamesd wrote: »

Stocks and shares ISA: 12,648 a year in after tax income.
Pension and drawdown: 14,052 a year in after tax income.

About 11% more income from the pension route in this example.

It really depends on whether you think an extra 11% in income is an adequate recompense for loss of control of the capital forever.

jem16

EdInvestor wrote: »

It really depends on whether you think an extra 11% in income is an adequate recompense for loss of control of the capital forever.

If the capital is required to provide an income what control have you got over it anyway?

klp_3

Ok it looks like i am better off transfering the money into another pension, has anyone got any advise on the best pensions?

jamesd

nrsql wrote: »

>> About 7000 of that will be tax free
I take it this assumes no other income?
Do your calculation take into account a state pension?

I assumed state pension and retirement at 65 or later with the increased personal allowance. 5-6k state pension, 10k allowance, 11-12k income.

Since the state pension uses the increased personal allowance the difference between ISA and pension is similar for earlier retirement.

nrsql wrote: »

I would guess that at higher income rates the ISA gets comparatively more profitable.

Yes, the benefit of the pension as a percentage decreases as the proportion over the personal allowance increases. Then there's a particularly large decrease during the range over 21k where the increased personal allowance is reduced by the extra taxable income.

The pension benefit increases if it's paid into via salary sacrifice or if it's done out of higher tax rate income.

nrsql wrote: »

Don't know much about pensions as I consider them too risky.

Not a lot more risk in there than for the S&S ISA approach. Worth at least getting pensions to say 10k (including state pensions) to get the maximum tax benefit from the personal allowance.