The Biz Whizz

The more you learn, the more you earn

ISAs | 26th September 2018

ISAs vs pensions: which is right for you?

Around the world, retirement is a hot topic – it’s supposed to be a time to take it easy and relax. However, it’s not as simple as that, and you have to plan your finances well in advance before getting close to the ever-increasing retirement age. 31% of adults have no private pensions or funds set outside of a state pension.

It’s no secret that the state pension alone doesn’t leave anyone in a comfortable position. And as the life expectancy increases, more and more money will need to be set aside so that you aren’t left scraping your savings together when you say goodbye to the workplace. To combat this, private pensions are in the public’s mind. But, are they the best option, or can ISAs be more beneficial?

Risky business

ISAs are fast becoming a fantastic way to save for rainy days, dream getaways, and the future.

Aside from ISAs being a tax-free way to save, they offer plenty of flexibility – you don’t have to wait until you’re 55 to access your savings. There are also multiple types to suit any situation. For example, a stocks and shares ISA is a higher-risk method of growing their investments, but a more stable cash ISA exists for the risk-averse.

A significant benefit of pensions, however, is gaining tax relief on contributions. This is when the tax on your earnings are put towards your pensions instead of the government – for example, basic taxpayers can expect to get a 20% tax relief.

The tax relief sounds fantastic but so does a tax-free ISA; how do I choose?
It depends on when you want the money and what you want to use it for.

Annual limits

ISAs and pensions both have a limit to how much you can invest. For pensions, this currently stands at £50,000 annually, and the ISA at £20,000 during the 2018/19 tax year. You don’t benefit from tax relief on money in an ISA; however, the money you do earn is tax-free.

A benefit of ISAs that a pension doesn’t generally offer is that you can open some types of ISA accounts from the age of 16, whereas most pension programmes don’t enrol you until you’re at least 21 years old.

Who wins?

Neither. Both offer different advantages. It’s up to you to decide. If you have already started putting away money in the pension pot, and you’re comfortable with the amount you’re putting away, there’s no reason to stop. But if you haven’t yet figured out what to do with your money – why not find out more about the benefits of ISAs and if any of them suit you?

If you’re looking to save for retirement, why not set up an ISA? Our website has been designed with you in mind to make the process easy. We have searched the internet for the best ISAs so you don’t have to. Start investing today so you can relax during retirement.

Let's keep in touch

Sign up to recieve all of the latest financial and investing news straight to your inbox. We'll only send you news related emails up to once a week. You can opt out at any time by following the directions within our privacy policy.