Should I pay into an ISA instead of a Personal Pension?

Give that ISAs offer tax-free savings, am I not better investing my money into one of these rather than a pension?

Question asked by Glen Donaldson
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I know how much my pension is worth
I know how much my pension costs
I have clear financial goals for my retirement

Answered by Andrew Jenkinson

Individual savings accounts (ISAs) are a great way to save as returns are tax-free, and you can put your money into a huge range of different investments. The other big advantage is that you can cash them in at any point, whereas you can’t access your pension until you reach the age of 55.

In the 2017/18 tax year, you can save up to £20,000 into ISAs, either investing in cash or stocks and shares, or a combination of the two. Returns are free from both income tax and capital gains tax.

ISAs and Tax Relief

However, unlike pensions, any money you pay into an ISA won’t benefit from tax relief (i.e pension contributions are paid from gross income whereas moneys paid into an ISA are paid from net income). Also, your employer won’t make contributions on your behalf.

To see how valuable pension tax relief can be for you, use our Pension Tax Relief Calculator →

Usually it’s a good idea to save into both pensions and ISAs when thinking about how you will fund your retirement. If in doubt, seek professional financial advice about which investments are likely to suit your requirements.

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This information does not constitute financial or other professional advice. You should consult your professional adviser or contact us directly on 02084327333 should you require financial advice. It is important to ensure any insurance policy you take out is suitable for your needs.
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