ISAs v Pensions: The Official Retirement Debate

Linda32 · 13 February 2007 at 12:21PM

Okay, thankyou, I know nothing about the Stocks and Shares ISA.

Basically, hope this is the right place to ask.

Myself and my partner are 35 and 37

I have a stakeholder pension, which I transfered the fund from a private pension into.
Partner has a private pension with L&G but not paid into for 16 years, due to having a company pension at Caterpillar.

We both have ISA's and easy access savings.

He now dosn't work for Caterpillar so wants to know if these somewhere else to put, what would be his pension contribution, rather than back with L&G.

DavidLaGuardia · 13 February 2007 at 12:45PM

dunstonh wrote:

Benefits of pension

1 - tax relief on contributions
2 - no inheritance tax to pay if you die before retirement as lump sum is outside of estate
3 - on death before retirement, the death benefits (value) will be 22% higher than an ISA
4 - not accessible until 55 (from 2010). Double edged sword for some but some need the tie in.
5 - contributions can increase your working/childrens tax credits received giving upto a potential equivalent of 72% tax relief

You have covered nearly all the pros and cons, just to add that pensions are protected from creditors should this ever be an issue (but not ex spouses!)

DavidLaGuardia · 13 February 2007 at 12:50PM

nrsql wrote:

I would go for an isa because I don't trust pensions.
That' not a view due to the recent troubles but because money is locked in and there's not a lot you can do if the rules change.
At least currently with an isa you can take the money out so I feel there's less chance of an unavoidable loss.
But then I wouldn't keep everything in an isa wrapper either, just in case.

I don't trust chickens due to the recent troubles.
Such is the inane quality of people who use "received wisdom" without elaborating on it. What troubles? are they even relevant to the majority of pensions available. What are you on about?

dunstonh · 13 February 2007 at 1:08PM

Its a bit like the comment you get at times from people who say they invest in ISAs because they make more money than their pension. There is no sense in that comment but you hear it very often.

Or those that say that they have switched to a SIPP and its making more than their personal pension used to.

It has nothing to do with the wrapper. Its where you invest the money that is important. If you pick the same investment funds in an ISA and a pension, they will perform exactly the same.

The most important part about investing is where you invest the money. Yet when it comes to pensions, people seem to ignore the investment side of it and go with a default fund (which usually ends up being pretty naff). Then they wonder why performance is poor.

A common mistake by the novice investor who altered their investments after a crash (also known as fair weather investors) is to compare what they have now against what they had before and make a judgement based only on that. What they had before went through a crash (often transferred or cashed in before recovery was possible). What they have now has only seen growth and hasnt gone through a crash.

jem16 · 13 February 2007 at 1:39PM

Linda32 wrote:

Okay, thankyou, I know nothing about the Stocks and Shares ISA.

Basically, hope this is the right place to ask.

Myself and my partner are 35 and 37

I have a stakeholder pension, which I transfered the fund from a private pension into.
Partner has a private pension with L&G but not paid into for 16 years, due to having a company pension at Caterpillar.

We both have ISA's and easy access savings.

He now dosn't work for Caterpillar so wants to know if these somewhere else to put, what would be his pension contribution, rather than back with L&G.

Might be best to start a new thread with these questions. You'll probably get more answers.

JohnThomas_3 · 13 February 2007 at 4:58PM

I'm new here, just having a look around. In 5 mins I have literally doubled my knowledge of pensions and ISAs. That's probably a sad reflection of my knowledge. But still, thanks.

deadparrot · 13 February 2007 at 7:14PM

Any reason why someone starting out in their career and a basic rate tax payer shouldn't pay into an ISA to begin with, then later in their career when more likely to be a higher rate tax payer start transfering (within pension contribution limits) ISA money in to a pension fund?

risk is that rules will change, but surely if someone expects to become a higher rate tax payer in the future, defferring contributions while a basic rate tax payer would be a good idea?

EdInvestor · 13 February 2007 at 7:48PM

deadparrot wrote:

Any reason why someone starting out in their career and a basic rate tax payer shouldn't pay into an ISA to begin with, then later in their career when more likely to be a higher rate tax payer start transfering (within pension contribution limits) ISA money in to a pension fund?

risk is that rules will change, but surely if someone expects to become a higher rate tax payer in the future, defferring contributions while a basic rate tax payer would be a good idea?

Yes.The ISA is a "use it or lose it" annual allowance, whereas pensions are now subject to a "lifetime limit."

So if there are no employer contributions available, it's much more sensible for the BRT to save in the ISA and then later transfer the ISA lump sum into the pension, getting 40% tax relief ( of which 22% will top up the pension and 18% will come back in cash as a rebate and can be put back to replenish ISA savings.)

moneyandmountains · 13 February 2007 at 8:09PM

deadparrot wrote:

Any reason why someone starting out in their career and a basic rate tax payer shouldn't pay into an ISA to begin with, then later in their career when more likely to be a higher rate tax payer start transfering (within pension contribution limits) ISA money in to a pension fund?

This depends on whether the company that they work for pay a contribution to the pension. This is free money that will be lost if they aren't part of the occupational pension scheme.

dunstonh · 13 February 2007 at 8:35PM

free money from the employer into a pension trumps an ISA.

At the end of the day, what you are looking at here are identical investment options but with different tax handling and maturity issues. The UK has something like 13 tax wrappers which is really daft and confusing but it does allow you to manipulate the tax system to your advantage if you know what you are doing or have an adviser who knows what they are doing.

ISAs v Pensions: The Official Retirement Debate

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