What is better, an ISA or Pension?

Ideally both or, even better, all three! This would include a pension(s), a Cash ISA and an Investment (Stocks and Shares) ISA.

In order to answer the question, ‘what is better, an ISA or pension’, we need to understand your circumstances.

The following could be important considerations for pension funding:

• Will I get an employer contribution?
• Can I use salary exchange/sacrifice to save national insurance?
• Can I benefit from higher or additional rate tax relief?
• Do I need access to my capital?
• What is my income tax position now?
• What is likely to be my income tax position in retirement?
• Do I need to make provisions for my spouse and dependents?

From an ISA perspective, the following might be important to consider:

• Am I young enough to benefit from the effective tax relief for ISA’s from April 2017?
• Do I need to access my capital?
• If I access my capital what will my pension be in retirement?
• Is my ISA capital my deposit for my first home?

Cash ISA’s are generally used for short term holdings and emergency funds. ‘Short term’ means for up to a 5-year period. Holding cash ISA’s (or cash deposits) for too long could see your capital’s buying power eroded by inflation over the long term.

 

In summary, a balanced approach using a variety of different investment vehicles to save for your retirement will give you the maximum flexibility and the potential to be more tax efficient in retirement.

Subject to your objectives, we can advise you on the best combination of pensions and investments to suit your needs.

If you have any questions regarding which option may be suited to your objectives, contact us at People and Business, click here.