Pensions Contributions Or ISA Contributions ??

[SackmanandCo]

A balance investment policy is always best. Pensions do have a role but yo uneed ot be sure you will get a decent sized pot at retirement because annuity rates are so low and the incoem would be taxable.

[pmeswani]

I have been reading about this and my IFA has also suggested that instead of I or my ltd company contributing to my pension pot, that I invest the funds in ISA investments up to the ISA limit instead. Reason being I still have access to funds (unlike pensions), ISAs are tax free on withdrawal (unlike pensions etc), and ISAs can outgrow pensions.

Now ever since I was young I have had it drummed in that I must save into pensions as early as possible etc etc. I am happy to go with my IFAs recommendation as he is good, but there is a niggle in my mind for some reason.

Is anyone else using this approach of ISAs first then pensions ? Would be interested to find out.

The only real benefit of an ISA is that you don't pay any additional tax on the money you put into an ISA. The down side is that you have already paid the tax on the amount you are about to put in. Another downside (according to http://www.hmrc.gov.uk/leaflets/isa-factsheet.pdf) any dividends received will be subject to the 10% tax credit.

Like for like, pensions are more tax efficient in that you get an additional 20% to 40% (possibly up to 50%, can't remember the rules off hand) added by the tax man added to your pension. When you draw your pension, if you do it with the appropriate advice, you may only have to pay 20% on the amount you draw after the tax-free lump sum.

If you can, take up both SIPP and ISA's as there is a case for both of them.

[Fred Bloggs]

Big advantage of a pension for me, is to take wage/divis upto the 40% threshold and no more. Then I pay as much as possible into my SIPP out of the company bank account. Paying into an ISA reduces the money I get in my hand to spend every month.

[moorfield]

, that I invest the funds in ISA investments up to the ISA limit instead.

Is anyone else using this approach of ISAs first then pensions ? Would be interested to find out.

... and pay your IFA a nice fat commission in the process, hence the recommendation.

Two recommendations.

(i) Ditch your IFA.

(ii) Invest in both (ISA and Pension) - obviously only you can decide how much in each and in which order. I try and fill up my & the missus's ISA limits first, and any surplus from the ltdco goes into the SIPP. All goes into high yielding shares and will be left alone for the next 20 years until I retire!

[lje]

I fill up my cash ISA every year and pay money into pension. I'm not currently putting any money into a Stocks and Shares ISA but I am thinking about it.

Although you don't pay any tax on money in an ISA when you take it out you do pay tax on it before you put it in. With pensions it's the other way around - no tax on the way in but taxable when you take it out. What rate of tax do you pay now compared to what you are likely to pay when you take money out of a pension?

To be honest I strongly believe that a combination is the best approach. Why not put half into pension and the other half into ISAs?

[kaiser78]

I have been reading about this and my IFA has also suggested that instead of I or my ltd company contributing to my pension pot, that I invest the funds in ISA investments up to the ISA limit instead. Reason being I still have access to funds (unlike pensions), ISAs are tax free on withdrawal (unlike pensions etc), and ISAs can outgrow pensions.

Now ever since I was young I have had it drummed in that I must save into pensions as early as possible etc etc. I am happy to go with my IFAs recommendation as he is good, but there is a niggle in my mind for some reason.

Is anyone else using this approach of ISAs first then pensions ? Would be interested to find out.