Both ISAs and Pensions are tax efficient wrappers
that you can use to save money to provide a return for your
retirement. Funds are the investments that are often bought within
ISAs and Pensions but you also have the option of investing into
funds outside these wrappers.
So which is better for retirement?
The decision of investing in one over another is not always
clear-cut and will be based on your personal requirements. For
example, some individuals will find the accessibility aspect of
ISAs appealing whilst others prefer not to have the temptation of
drawing on their retirement savings. The tables below helps you
compare:
Contributions
|
ISA |
Pensions |
Funds |
| Maximum |
£10,200 |
None. Although you'll only get tax relief on
the lower of 100% of earnings or £255,000 (for tax year
2010/11) |
None |
| Are taken out of |
Post tax earnings |
Pre-tax earnings |
Post tax earnings |
| Tax relief on
contributions |
None |
Yes. Basic rate tax relief at 20%, higher
rate taxpayers can receive an extra 20% via self assessment and
additional rate tax payers an extra 30% 1 |
None |
Tax
Accessibility
On death
|
ISA |
Pensions |
Funds |
| Pre retirement |
- Assets become part of the investor's estate
- May be subject to IHT
- Investors are free to pass the assets on
|
A private pension can pay out the full value
of an investor's savings, plus the tax relief granted on the
contribution and this lump sum will typically be free from IHT |
- Assets become part of the investor's estate
- May be subject to IHT
- Investors are free to pass the assets on
|
| Post retirement |
As above |
Investors cannot pass on any more than a
token amount as a capital sum to inheritors - except for a
spouse |
As above |
1 From April 2011, tax relief on
pensions contributions will be restricted for those with incomes of
£150,000 and over, and tapered down until it is 20 per cent.
2 Please note that the 10% tax credit on UK equity
dividends is no longer reclaimable within an ISA or pension.