Pensions v ISA’s

There are two fundamental differences between them in that Pensions receive tax relief on contributions paid in but will be taxed when accessed. ISA contributions attract no tax relief and contributions come from taxed income but would be tax free when accessed. With the new regulations a Pension is an excellent savings vehicle for higher rate tax payers and is a great way to pass capital down generations free of Inheritance Tax, eg for a 40% tax payer a £10,000 pension investment will only cost you £6,000 after tax relief. You can also receive 25% of your pension pot as tax free money. The disadvantage of the pension is the age you can access it, which is currently 55 and will rise to 57 and may still be higher in the future. If we assumed that £500 a month (from taxed income) was saved over the 15 years from age 50 to 65 and that average annualised returns of 5pc after charges were achieved then the following fund totals would be achieved.. ISA: £132,412 Pension (basicrate taxpayer): £165,515 Pension (higher-rate taxpayer):

£220,687 Which savings route you take is basically down to a number of factors. • Your marginal tax rate. • When you want to access the funds. • How flexible you want your savings to be eg pre 55 might be an ISA, post 55 might be a pension. As with all financial advice it is best to discuss your options with an Independent Financial adviser.