Pension vs ISA. Which is best?
That depends when you need the money, as well as how you are planning to spend it.
When you are saving for retirement, you want to make sure that as much of the money as possible goes into your pot
• The best thing about pensions is the tax break you get when you pay in. HMRC rebates the tax you've paid into the pot to improve the amount you save.
• Pensions sit outside your estate for inheritance tax purposes, allowing you to pass money of free of tax.
• When you take money out of your pension, the first 25% is tax-free.
• Your money can grow in tax free.
• You are not restricted to how you access the money (except with a Lifetime ISA – you can only withdraw it at 60 or to buy a first house).
• Both have annual limits;
Pension maximum contributions are £3600 per year for non-earners, if working then either your salary, or £40,000 a year (if you are higher earner there may be other limits).
Isa maximum annual contributions are £20,000 for all over 18.
• Pensions also a lifetime allowance of £1.05m. Breach this and you will get a hefty tax bill.
• Pensions cannot be accessed before age 55 (this will rise in coming years)
Withdrawals from Pensions and ISA are treated differently. With a pension, after the tax-free 25%, you’ll pay income tax on what you withdraw based on your personal tax rate.
ISA’s are not taxed on withdrawal, because you’ve already paid the tax on it.
In many cases using a Financial Adviser to utilise a mixture of both Pensions & ISAs with a carefully planned withdrawal strategy will be the best way to save and spend in the long term.
To find out more about how Willow Tree Financial Services can help you achieve your financial goals, call 01323 436680 or go to Willowtree-fs.co.uk
The value of pensions and investments – as well as the income they produce – can fall as well as rise. You may get back less than you invested. Tax treatment varies according to individual circumstances and is subject to change.