Pension vs. ISA: The need to know points
An article written by Momentum Wealth
Saving for retirement is crucial in the UK, and two popular options for savings are pensions and Individual Savings Accounts (ISAs). In this article, we will explore the key features of pensions and ISAs and discuss the factors to consider when choosing between them.
A pension is a dedicated savings vehicle designed for retirement with key advantages:
- Tax Relief: Pensions offer tax relief on contributions, boosting your savings.
- Employer Contributions: Employers often contribute to workplace pension schemes, providing additional savings.
- Tax-Free Growth: Pensions grow free from income tax and capital gains tax, allowing for potential substantial growth.
ISAs offer flexibility and accessibility with these key features:
- Tax-Free Savings: Contributions to ISAs are from post-tax income, and returns are tax-free.
- Flexible Access: ISAs allow you to access your savings without penalties or restrictions.
- Options: You can either use an ISA to save (known as Cash ISA) or to invest in assets (known as a Stocks & Shares ISA), there are other ISA types as well such as Lifetime ISA and Innovative Finance ISA.
Consider the following factors when choosing between a pension and an ISA:
- Tax Considerations: Tax relief on pension contributions benefits higher-rate taxpayers, while ISAs offer tax-free withdrawals during retirement.
- Employer Contributions: Take advantage of employer-matched contributions to pensions.
- Accessibility: ISAs provide flexibility and easy access to funds, unlike pensions where you currently cannot access this money until you’re 55 (moving to 57 in April 2028).
Matt Routledge from Momentum Wealth.
