ISA slow burner

HGLTsuperstar · 24 January 2006 at 5:48PM

Just a very basic idea, please feel free to pick holes in it.
I am 25 yrs old. If I put 3K p.a. into mini cash ISA, assuming limit stays the same then, ignoring interest which will of course bump it up, I will have at say age 55yrs, in excess of 90K. With the new "A"day rules, could I then plough it into a pension as one lump sum and, as higher rate taxpayer, get 40% on top, so >126K easy money?
Of course this is in addition to company pensions with employer chipping in, other stocks and shares etc, but as a simple, long term slow burner, does this make sense?

dunstonh · 24 January 2006 at 6:10PM

only if you are still eligible to make pension contributions at that time. A current thread in pensions highlights that there are risks to this option. Redudancy, sickness getting sacked, forgetting it may take multiple tax years ae all risks of not being able to do it later on.

Also, at 25 years old, using Cash ISAs for 30 year investing is quite frankly daft. If you said equity ISAs, then sure, thats fine, but cash isas average return will be too low for 30 years.

EdInvestor · 25 January 2006 at 11:41AM

....there are risks to this option. Redudancy, sickness getting sacked, forgetting it may take multiple tax years ae all risks of not being able to do it later on...

There's also the "risk" that you might decide when you're older and wiser that it's an absolutely crazy idea to hand over all that tax free money in your ISA to a pension where you will lose control of the capital for all time, pay tax on the income,and all for the benefit of getting to keep 25% of the money as tax free cash.

So I should go for it.

But as DH says, a Stocks and Shares ISA is a much better idea for a 30-year investment, a cash ISA won't make nearly enough.

HGLTsuperstar · 25 January 2006 at 3:19PM

OK, so assuming current S&S ISA limits stay above or equal to 3-4K, wouldn't it be OK to pay into a pension as a higher rate tax payer, then by retirement be a basic rate payer so therefore ger 18% profit (i.e. 40% -22%)

dunstonh · 25 January 2006 at 10:01PM

Not only that, you get a £7000 personal allowance at 65 (in todays terms). Your state pension may not eat all of that up so you will have some of the pension not being taxed at all, then some only getting 10% tax and then the 22% band kicks in.

As I have mentioned before, it is certainly worth using the pension at least to eat up your personal allowances.

ISA slow burner

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