Resurrecting the pension vs. ISA debate
If last month’s Budget announcement is anything to go by it would seem the Osborne push for an ISA-centric world has met its maker under Chancellor Phillip Hammond. With no hint of an introduction to the Workplace ISA or inflation based increase for the ISA allowance, the minimal changes that Hammond did announce on pensions has somewhat revived the age-old dispute of pensions over ISAs.
The simple fact is that pensions and ISAs should not be seen as in direct competition for retirement saving, but instead as being complimentary to each other. There are few people fortunate enough to be able to fully utilise the £40,000 annual allowance and £20,000 ISA allowance, and for most to put all their savings into just one or the other could be unwise.
With tax relief on contributions, tax free growth, the flexibility to access income from age 55 with up to 25% paid out tax free, and in addition the ability to pass on your pension fund on death in a tax effective manner, has made pensions more attractive than ever.
The ISA, though not benefiting from tax relief on contributions, does allow tax free growth and tax free access at any time. The one point to consider though is that it does form part of the individual’s estate for inheritance tax and when combined with the value of other assets, such as their home, cannot be ignored.
In retirement, for both income tax and inheritance tax planning, taking a combination of income from both pension and an ISA cannot only save tax but can preserve a client’s savings, enabling them to maintain their standard of living longer or to pass wealth on to the next generation.
The demand for advice in this area and the ability to have a client’s savings held together on one platform to help maximise the planning opportunities will only get greater. So I say long live the continuation of benefits for both pensions and ISAs.
This blog first appeared on Professional Adviser