Which is better: Pensions or ISAs?
Pensions and ISAs are the preferred way of ensuring your financial future.
10:43 29 December 2013
When retirement comes beckoning, it is important to consider how you are going to make ends meet. Safeguarding your nest egg is important. If there is no consistent stream of income, you might end up wallowing in poverty. Nobody wants that.
It is in your best interest to take care of your investment for the future. Pensions and ISAs are the best way of doing so. However, people rarely go for occupation pensions these days. They instead opt for personal pensions like Self-investment Pension Plans and Investment ISAs. The sooner you can take care of your retirement in your working years, the better the chances of you enjoying your retirement. This, however, comes at a price_ you have to have your salary deducted to pay for your ISA.
Let us contrast and compare ISAs and Pensions
The only similarity between ISAs and pensions is that the funds grow tax-free.
- The amount you invest cannot exceed £11,280 per tax year, whereas, in the case of pensions, the maximum amount invested stands at £50,000 per tax year.
- Pensions have a high rate of tax relief. If your contributions are high so is your tax relief. ISA have no tax relief this means that your fund grows slowly. While the tax reliefs of pension are high, you have to pay taxes when you want to withdraw your investment.
- Only 25 per cent can be taken tax-free. In ISAs, you can take the whole of your investment tax-free.
- ISA do not have an age limit for accessing your funds, whereas, in case of pensions, you can only access when you reach the retirement age, which is 55 now.
- ISAs take care of your family in case you pass away. In case of pension, your family might end up getting nothing or very little.