No point saving into a pension if you’re a basic rate tax payer; ISA is better. Is this true?

If you want to achieve financial freedom - the phase of life we commonly call retirement - then there a lot of decisions that you need to make.
The most important one is what to do with your money so that it works as hard as possible for you.
A number of you have told me in the comments that because you are a basic rate tax payer, you pay into an ISA instead of a pension. The rationale being that pensions are taxed when you take income so you’re better off saving into an ISA which is tax free.
Also, many of you are suspicious about pensions because you’ve heard about people who have their company pensions in the past.
In this video, we are going to work through some scenarios together to look at the comparison between ISAs and pensions for achieving financial freedom.
Book free call with me here
diannesullivan.co
timestamps
0:00 intro
0:56 the basics
4:00 the comparisons
9:57 the outcome

[@kortyEdna825]

Am 58 retiring next year but the thought of retirement gives me weakness. My apologies to everyone who have retired and filing social security during this time after putting in all those years of work just to lose everything to a problem you never imagined to happen. It’s so difficult for people who are retired and have no savings or loved ones to fall back on.

[@Pamela.jess.245]

True, It has never been easier to understand how to build your money after retirement than it is right now with the inflation, when you may study and experience a completely variegated market passively by employing a successful portfolio-advisor. The impacts of the U.S. dollar's gain or fall on investments, in my opinion, are complex.

[@foden700]

Even if you’re not skilled, it is still possible to hire one. I was a project manager and my personal portfolio of approximately $850k of my retirement pension took a big hit in April due to the crash. I quickly got in touch with a financial-planner that devised a defensive strategy to protect my funds and make profit from my portfolio this red season. I’ve made over $250k since then.

[@PatrickFitzgerald-cx6io]

This is exactly how i wish to get my finances coordinated ahead of retirement. Can I get access to your advisor?

[@foden700]

There are a handful of experts in the field. I've experimented with a few over the past years, but I've stuck with ‘’Marisa Michelle Litwinsky for about five years now, and her performance has been consistently impressive. She’s quite known in her field, look-her up.

[@PatrickFitzgerald-cx6io]

Thanks a lot for this suggestion. I needed this myself, I looked her up, and I have sent her an email. I hope she gets back to me soon.

[@kevingutierrez-nc8gw]

This seems like the worst period. Even the market are now very unpredictable. Started investing recently when the market prices were a bit high, today I am more than 60% down!

[@mark-fm6ey]

Don't be confuse buying the dip in a bear market, with guaranteed future returns. Just because that company is down 60% + from ATH does NOT make it a sound long-term investment. Make sure you're investing in great companies. kudos to Juliana Heidi.

[@darrenmoore-xx5rc]

I agree just reached my goal of $500k monthly trade earnings. Setting realistic goals is an essential part of trading.

[@kevingutierrez-nc8gw]

please educate me, i am willing to make consultation to improve my situation.

[@mark-fm6ey]

She's recognized as 'mrs Juliana. One of the finesst portfolio managers in the field.....and widely recognised; you should take a superb look at her analogies.

[@toulahen-sd6zk]

Woah for real? I'm super excited. Juliana heidi strategy has normalized winning trades for me also. and it's a huge milestone for me looking back to how it all started

[@johnristheanswer]

You need to mention the inheritance position. Pension best bet there too. Not included as part of your estate.

[@Thomas-ff7wn]

It depends on your financial goals and circumstances. ISAs offer tax-free growth, which can be advantageous, especially for basic rate taxpayers. But pensions come with tax relief on contributions, making them attractive too.

[@reginaldhufenstien]

True, but pensions have restrictions on when you can access your money, whereas ISAs provide more flexibility. Plus, with the uncertainty in the global economy, having diverse investment options is crucial.

[@Churchillhump2268]

Absolutely, diversification is key. With the volatility we've seen recently, relying solely on one investment vehicle could be risky. Both pensions and ISAs have their merits, but it's essential to have a well-thought-out strategy tailored to your needs.

[@louisahernandez]

And let's not forget inflation. With prices rising, it's essential to ensure your investments outpace inflation to maintain purchasing power over time. That's where a balanced portfolio comes into play.

[@Andres_853]

Agreed. It's not just about tax efficiency; it's about maximizing returns while managing risk. With proper planning and the right professional guidance, individuals can navigate the complexities of the global economy and build a robust portfolio for the future.

[@Linda.xing-tj2fh]

The problem is that people don't have the knowledge needed to succeed in a challenging market. Only highly qualified professionals who had to experience the 2008 financial crisis could hope to earn a high salary in these challenging condition

[@dallassukerkin6878]

A splendid comparison, dear lady, on the two different roads we can choose for retirement funds. For myself, I did both and have about 60k in pensions and 50k in an ISA. Still half what the numbers say I need but I have decided, as I turn sixty one in about twenty minutes, that my mental and physical health is more important than working on to invest more on the off chance that I will live until I am ninety. So, for now at least, I am officially retired! My ISA will keep the financial wheels on until the state pension comes along and the company pensions will add to that state one, such that I don't starve ... theoretically. I suspect I might have to take some part time work down the road but for now ... I shall rest.

[@Subbby]

Enjoy mate

[@123prestolee]

@@Subbby True wealth is time, and having the freedom to do the simple things in life. Society’s obsession with form will be the undoing of many, many individuals - you’ve made a very smart choice.

[@wiganer9912]

Assuming a 5% rate of return a pot of 140k when you retire will give you an income of 9k a year for 30 years or 12k for 18 years add this to your state pension and you will have more than 20k, i worked out that I myself in my situation will need about 18k a year total.

[@johnforrest4373]

Retired a few years ago, in March 20k of tax free lump sum to ISA, then another 20k in April!

[@katscotty]

This is a question I had in my head - thank you for explaining this so well.

[@rayoldam3248]

Thank you for the explanation Dianne. Some very good points.

[@bradleywood2678]

I’ve watched quite a few ISA vs Pension videos and this is the first that I’ve seen that gives a clear, straightforward answer

[@DianneSullivan]

Thank you. That means a lot

[@molex114]

Another excellent vid Dianne not just the advice but nice having someone do the complicated maths. I have a company pension that, to be honest, is crap but it's also free money and I have a private pension and a stocks and shares ISA. I'm fairly happy with the set up but having watched this will definitely review how much I pay into both to make sure I maximise my returns come retirement although the ISA and the company pension I intend to live off for as long as I can to give my personal pension a few more years to grow.

[@beckylee3356]

Great video and so well explained, very interesting. Keep up the great work! :)

[@VoiceOfThe]

I’m 50. Sold up and left the U.K. Summer 2021. Because of a significant lump sum I didn’t have either the ISA or pension option and had to do things differently by way of a GIA & get specific tax advice to optimise my circumstances / position.

[@robstanley7381]

Brilliant video, thank you 👍

[@AVTR]

Excellent video as usual 😊

[@DianneSullivan]

Thank you dearest friend :-)

[@pauls3075]

If you are relying on your ISA for a pension then you must be aware if you cannot work due to redundancy or sickness, the Government will count your ISA as savings and you will get NO support! You will be forced to use your 'pension' to support yourself until its all gone before the government will help you. This is why they are being pushed so heavily.

[@LickorishAllsorts]

Almost all gone, they let you keep a few thousand.

[@Gopher31]

A very important point.

[@wiganer9912]

Is this true? This will help convince me even more to switch to a sipp rather than an isa

[@steve6375]

@@wiganer9912 but if you cannot work due to redundancy you may be under 57 and so have no access to the money in your sipp

[@usgreth]

@@wiganer9912 This may be outdated or even just for a specific benefit so don't take it as gospel but..The numbers I remember are that benefits will be reduced if you have over 6,000 up until 16,000 at which point you will get nothing.

[@guitarsandcheesecake1632]

Great video. Everyone says about the tax on the way out. But no one mentions the tax relief and compound interest on pension contributions. I have 2 pensions and an isa........the pension will be great to leave money for my family when I'm gone!!

[@tobytroubs]

You get Compound interest on a Stocks and Shares ISA the same...and it's tax free and you aren't being charged fees by some Pension Company creaming off the profits

[@guitarsandcheesecake1632]

​@@tobytroubslol.....this video proves you are wrong. Or should have both

[@tobytroubs]

@@guitarsandcheesecake1632 Really ?...my Isa investment portfolio proves other wise, and it's all tax free , remain ignorant...oh yeah, I forgot ...lol

[@Lookup2Wakeup]

Well explained. Makes sense. 👌

[@DianneSullivan]

thank you!

[@mwscuba]

pension will generally always outperform ISA over the long term, the joys of compound interest on the "free" government 20% or even 40% plus most people who are 40% tax payers during their working life can become 20% tax payers during the drawdown phase and also pension unlike ISA currently fall outside inheritance tax

[@Darren66860]

Great video Dianne as always. An ISA would also fall under your estate for Inheritance tax where as a pension wouldn't be (unless things change in the future)

[@kw8757]

Probably will change when Labour want to get their grubby mitts on our hard earned money so they can squander it on the "poor", like Gordon Brown did.

[@workinprogresssince1974]

I am not even a basic rate taxpayer. I get 20% on my contributions from the Gov, and even though I pay less into my pension than I do into my ISA, my pension is likely to grow more than my ISA. If you're going to do stocks and shares, they all come with risk. I too was really suspicious of pensions, but I now have both a private pension and an ISA and I am growing them along side each other for retirement. One will be tax free, one won't. However, don't forget the state pension (whatever that looks like) will top up these incomes, but of course will be taxed over whatever the personal allowance is. Everything needs to be taken into account.

[@knowledgeseeker5499]

You can do partial transfer of work pension to your SIPP private pension. I do every two months into my SIPP pension.

[@NadiaUsman1]

​@@knowledgeseeker5499 how? I asked Aviva if I could and they said no.

[@knowledgeseeker5499]

@@NadiaUsman1 strange they have no right to deny partial transfer. I did many times from two three different pensions providers. I do every two months from my current employer pension provider to Vanguard without any issues

[@knowledgeseeker5499]

@@NadiaUsman1 you have to raise partial transfer request from SIPP account to your employers pension provider

[@MrKlawUK]

if you expect/hope to retire early, a balance of ISA/Pension can be useful. Also LISA can be a good option for basic rate tax payers - 25% bonus like you’d get from a workplace pension, plus fully tax free withdrawals. Downside is only accessible at pension age so no early benefit but from reducing taxable income pov it can make sense.

[@wokeupandsmellthecoffee214]

Another excellent tutorial Diane, I love the way you explain things to those of us who have no idea about pensions. I retired early at 58 in 2020 due to redundancy and decided to take my final salary pension along with a workplace pension. Obviously the final salary is guaranteed a monthly income for life but the workplace pension has lost money over the past 3 years so I decided to pull it from my financial advisor and its now with a large financial firm as a cash account so I'm now earning hundreds of pounds a month interest. My issue next will be if the interest rates go down should I reinvest into a pension scheme, I'm not keen tbh after what I've seen it can do.

[@adrianl5899]

Unfortunately those who held a high % of gilts (especially long gilts) these past few years will have seen a once in 100 year drop in their value. Thus those in default funds, which often hold such gilts, those who chose 'cautious' funds or those in lifestyle/target-retirement funds may have had large exposure, especially if they were nearing whatever retirement age they chose. On the flip side, annuities became a viable option for many given the better rates.

[@wokeupandsmellthecoffee214]

@@adrianl5899 thanks for replying, I just wished my then financial advisor had advised me to switch my pensions pot into a cash pot but then he wouldn't have been able to claim his monthly fee which continued as my pot lost thousands over the 2 years since covid. I had no idea I could have chosen another option.

[@clarenceishmael9615]

I'm starting to give you a like at the beginning of the vid as I know it's going to be a good one. 😊👍🏾

[@dallassukerkin6878]

Likewise :)

[@kw8757]

@@dallassukerkin6878 Wiselikes :)

[@macky573021]

The way I see it is that contributing to a pension via salary sacrifice is a win win as it’s money you’ve earned without it being taxed, if you put money from your net pay into an ISA it’s already been taxed hence you have less of it, not to mention the saving on NI using salary sacrifice. It’s also a good way to move from higher to lower tax rate threshold. Please correct me if I’m missing something here.

[@knowledgeseeker5499]

Please don’t forget to mention pension can be passed on to next generation without inheritance tax if I am not mistaken

[@lawrencer8673]

You are correct

[@123prestolee]

This, and the 25% tax free, are why I have a pension.

[@kinggeoffrey3801]

Not necessarily. I didn't get my mums pension when she died. It depends on the company and pension type.

[@slayerrocks2]

​@kinggeoffrey3801 your mum's must have been a DB scheme then, or she sold it all for an annuity. A DC pension, in drawdown or UFPLS will be passed on, at the beneficiaries' marginal tax rate, or tax-free if before 75.

[@feliciaflinders]

Defined benefit pensions can be passed on to spouse but not children. It depends on the pension scheme rules

[@roly7773]

Great video thank you. As my pensions total is much higher than my ISA. i am thinking of taking enough of the tax free amount from my SIPP via draw down each year to further build up the ISA. I would invest the ISA the same as the SIPP so the returns wouldn't be different. I am hoping this would protect me from future reinstatement of the lifetime cap on pensions, reduce income tax and the risk the 25% Tax free is removed or reduced. I would like to continue paying in to my current DB pension as my employer matches this and i am a higher rate tax payer. apols there is a lot to unpick there but maybe an idea for a video?

[@iansinclair7581]

Basic plus in favour of pensions is the you can’t be tempted to touch your pension till you reach the appropriate age. Secondly the way the Government are drawing people into higher tax brackets you may well get higher tax relief on contribution but pay lower tax on income.

[@charleedell92]

I am on a low income and I pay into a SIPP because for every pound I pay in the government pays 20p, and also with a SIPP your children or other beneficiary receive all of it when you die without any inheritance tax. This can be relevant if you own a home even if you are not rich.

[@Oggiesilverfitness]

I'm 63 now and have around £47,000 in ISAs and around £40,000 in a private pension. After listening to this, I am wondering whether I should take out some of my ISA money as a lump sum and put it into my pension instead.

[@colincampbell4261]

Many people are scrapeing the rent together every month and eeking out their food. Going into debt to buy scool uniforms. Never mind being able to save for the future.

[@petermason514]

Another great video. Love the channel. One question then if I have say £200k in cash, what percentage to put in ISA and what to a SIPP?

[@DianneSullivan]

Hi Peter, there’s no “right” answer for that I’m afraid…. It’s the annoying “depends” answer. The obvious response is to max out on £20k into ISA and £60k in SIPP as those are the maximum annual allowances (assuming you’ve used none of your allowance) - but there are many other factors for consider with respect to your specific circumstances. Your attitude to risk and tolerance for loss are key contributing factors. Sorry I can’t give you the perfect answer as there isn’t one…

[@sassasins031]

@@DianneSullivan At the very least put 20K into a Cash ISA for the next 10 years if you do nothing else.

[@davem.4003]

If you are employed, as Dianne mentioned, your tax-free pension contributions are limited to £60k, or 100% of your employment income, whichever is lower. And don't forget to deduct any expected pension contributions from employment because the allowances are the maximum in any tax year. If you already have some "emergency pot" savings, then you could take a different approach: If you are able to contribute to an employer's pension scheme via salary sacrifice, e.g. Additional Voluntary Contributions (AVCs) then you could make these contributions from income right down to the the annual tax-free personal allowance and then supplement your income from the cash pot. As Diane said, the best solution for you depends on your personal circumstances and it may therefore be worthwhile seeking professional advice.

[@neo2k24]

Another factor, Private pension is available at age 55- 57. That will surely move when state pension moves... With state pension likely to move into the 70s in the future, so will private pension into the 60s.

[@markeh1971]

Hi, it’s the access issue with a SIPP that is the issue. So for a younger saver it’s better to have access if you need it. So have a SIP with an employer co contribution and an ISA as well is a good plan. Take care all M.

[@neo2k24]

Agreed. Retiring around 50, isa is the best option.

[@kinggeoffrey3801]

Also the pension providers normally cap it at 25% at 55-57.

[@michaewelina7983]

That is the biggest issue with private pension, you will aim for 55 to retire and they will tell you that you cant till 62. Not mentioning only SIPP will give you true access to low fee investment products.

[@grahambriggs8338]

It is worth looking around for access age protected (57/58) pensions if you are young enough that this will be an issue. Some people have these for 55.

[@Gopher31]

Would you be able to do the same for a LISA? This is probably a better like for like comparison to the SIPP as it’s also locked away until a certain age.

[@user-gz2os8mi9h]

Excellent.Could you examples for high tax payers,Pls?

[@kingster2069]

Did you consider in your examples the impact of state pension? In your examples the SIPP savers would be paying 20% tax rate on all state pension where the ISA saver would get the full state pension tax free which is I think a £2k benefit per year

[@Whalewraith]

Its worth noting if you always had a minimum wage job, skipped years etcetera and didn't build up much of a pension, you probably won't get enough a year to trigger tax. In which case the pension is definitely the way to go.

[@thelastemperor3704]

I work abroad at sea and therefore am only allowed to contribute £2880 per annum to a SIPP as a non tax payer which restricts me from paying more into a pension so my only real option is to max out ISA's for myself and my wife. I wish I had the luxury of having to choose but I guess what I lose on a SIPP I more than gain in terms of income tax. Great video though, really clear explanation.

[@jschreiber6461]

check with your sipp provider or tax advisor, although it’s true you can only pay in £2880 topped up by hmrc with a further £800, i think you can contribute more but have tell your sipp provider that the extra is not eligible for a tax reclamation like the £2880 or if you were paying uk PAYE. So the extra contributed in your sipp is limited by the annual tax contrib limit.

[@slayerrocks2]

It makes no sense to pay more into a SIPP if there is no tax relief. You get all the restrictions for no benefits. Full control of an ISA wins.

[@MultiLogina]

+ if you pay your pension your employer match at least 3% so there is no point to opt out of pension, mby just to change provider.. for example Nest is the worst with the funds and aviva way better

[@christiansoldier1118]

I have more money in ISA's than my pension - I am 54 - and want to retire at 60 - should I use my ISA to max out my pension each year?

[@grahambriggs8338]

Risk of an ISA: Because it is available money, it gets spent for uses other than retirement. Some necessary, some unnecessary. It is a fact that some people are not good with keeping hold of money if they know it exists, and the risk is doubled if there is a couple of people. Pensions are locked away until retirement, and hopefully some financial maturity. Additionally pensions come with employer contributions for most people, so comparing a defined contribution salary sacrifice pension with an ISA will skew even further in favour of the pension option. What ISAs are good for is bridging until your personal private pension age (57 or 58 for most) if you retire or get ill before this age. They are also good for holding your emergency fund. The pension is also outside your estate for inheritance purposes, if you have an estate of the size that would attract IHT.

[@ianwall9152]

Interesting. If you have a salary sacrifice scheme you will need to put in the gross amont . Ie 400 needs to 500

[@stevem9754]

very useful comparison, thanks. But i did not understand whether you did or did not subtract the 25% tax-free lump sum from the £259,662 SIPP. If you did it will reduce the capital left to fund his retirement down to a similar amount to the lady with £207k in her ISA, right?

[@DianneSullivan]

No 25% deducted from the SIPP. All left invested.

[@frederickwoof5785]

So basically the tax relief part of pension contributions increases (hopefully) by 5% per year. Depending on market performance.

[@porschecarreras992cabriole8]

Assuming this is a workplace pension you also get a matching contribution from your employer. So if you invest £500 per month you get not only tax relief but also another £500 from employer. ISA only savers got this wrong. I managed to pay over my £60k allowance in pension but I did 9k on ISA. Pension first then any left to ISA. I hope this year to max both!

[@DeeCee-nb6ev]

Not all employers match the employees contribution. Under NEST they are obliged to pay 3% minimum, they are not required to match or pay more than the employee.

[@porschecarreras992cabriole8]

@@DeeCee-nb6ev indeed! But also some pay more than you do. Before I used to pay 5% and employer used to pay 10%. Government employees also have this and they are 6 millions. So overall as an average it is matched some more some less! Use the average not the extreme cases!

[@davem.4003]

If you managed to pay over £60k into your pension, then that is very efficient from an income tax point of view because you would otherwise be well above the upper threshold for the basic rate tax payers, which is the intended audience for this video.

[@porschecarreras992cabriole8]

@@davem.4003 I was reading an article that some people paid 200k in their pension as a lump sum this year as they are afraid the labour government will reinstate the LTA. I wish I had that kind of money to put in there.

[@grahambriggs8338]

@@porschecarreras992cabriole8 If Labour do reinstate it, it will likely be at £1.8m (or £2.5m inflation-adjusted), not the £1m level the Tories had reduced it to when they were in power. These people don't seem to realise that it was the Tories that created the LTA problem in the first place by reducing it from £1.8m in 2012. If anyone can't be trusted, it's the Tories.

[@BaileyMxX]

I think the only mathematical downside to pension in regards to tax situations is the possibility of the government going after the ripe fruit of pension pots later down the line. Whether that be scrapping the tax free element, reinstating a LTA or just moving the bench posts when it comes to income tax rates on income drawn ( could be much higher than 20% basic rate) Lots of hypothetical what ifs, bit besides property pension pots will be the largest hanging fruit to utilise for a government in a tax deficit. ISAs have always been tax free, the total amount held in them in the UK is far far far lower than pension pots and much harder to scrap a tax free wrapper (if anything theyll reduce the amount you can put in them a year, look at the US where they are limited to $7k a year, much more generous allowances here especially when you include the new extra 5k british S+S allowance too. That being said, pensions with the current setup and ability to compound tax free + employer match are hugely beneficial in current set up

[@stephen2203]

I withdraw from my SIPP using UFPLS. For the uninitiated this allows part of a withdrawal to be "tax free" and the rest is considered taxable, thereby reducing the overall tax paid. In reality I am also receiving SSP which is currently more than £11k. This means that all my 'taxable' SIPP income is taxed at the lower rate, however 25% of that is considered tax-free so I pay tax on three quarters of my SIPP withdrawals.

[@davem.4003]

A simplistic way of looking at this, both for UFPLS, or drawdown from a personal pension, is that once you have exceeded the tax-free personal allowance, personal pension income is taxed at 15% rather than 20%. (25% of the income is tax-free and the remaining 75% is taxed at the 20% basic rate)

[@michaelleiper]

There are some additional benefits to money going into a pension rather than an ISA (in addition to the 25% tax-free component which you did mention) First, usually the company you work for is doing some sort of matching on at least part of the money you put in to your pension. That's probably why you picked self-employed people where that is not going to be the case. Second, and admittedly this only relates to people who retire abroad (which is probably going down due to the difficulties in retiring to places like Spain caused by Brexit), an ISA is only tax exempt in the UK. If you retire abroad, the gain is going to often be taxable in the country you've retired to. (At least the average gain on what you take out of the ISA that year) A pension on the other hand, as you're already paying tax on it, even if the tax rate is higher in the country you've moved to - you're only paying the difference as extra tax.

[@VoiceOfThe]

There’s always legal loopholes & workarounds when you move abroad to ensure you’re tax optimised. A tax advisor / specialist is essential. Everybody’s situation is specific according to whereabouts they locate to and their personal circumstances.

[@stephenmatura1086]

Can you trust a future government to allow you access to your SIPP at 57 or will they increase it to 59, 60 or beyond? They've already proven that they can change to goalposts when it suits them so I wouldn't put all my financial eggs in a SIPP basket.

[@ChrisSmith-wz5ec]

You say the person paying onto a pension has money in the pension when they die, I was under the impression that if you purchased an annuity your pension fund would disappear when you die, if you made arrangements for it to continue after death you would have to accept a lower pension, also annuity providers will tell you what they're going to pay for a life time pension. The flexibility an ISA gives you during your life can also save you money, and to finish you can't spend money if your dead.

[@Andrew-dp5kf]

I read somewhere 2 interesting things you can do with ISAs coming up to retirement 1. Use the ISA to fund the gap between normal retirement and state pension (don’t fully understand this unless it’s for early retirement) 2. Near retirement take money out of ISA and put into SIPP to gain extra 20% Interested to hear this explained

[@knowledgeseeker5499]

But you have to pay tax on way out. I would take pension tax free lump sum money and investment in ISA.

[@nickb3475]

You could take money out of an isa and put it in a pension (SIPP) any time you like as long as it within allowable limits. You can pay in, and still get tax relief, 60k or 100% of salary, whichever is lower.

[@davem.4003]

Yes, the ISA definitely has its place - it's a good way to hold an emergency fund at any age. 1. An ISA would be a good way to fund the period between retirement and the age at which you are permitted to access a personal pension but in that case, with no other taxable income, you are not using your tax-free personal allowance. Even if you have no employment income, you are still allowed to contribute £2,880pa into a pension, made up to £3,600 by the 25% rebate from HMRC, as long as you had not been in receipt of a tax-free Pension Commencement Lump Sum (PCLS) (because that would fall foul of pension recycling rules). It would also be a good way to supplement income above the personal allowance. 2. There are a couple of ways that you can effectively transfer money from an ISA into your pension, subject to the allowances mentioned by @nickb3475. Either a simple transfer of the cash from your ISA into a SIPP, or, if you are still employed and can make additional pension payments by salary sacrifice, increase your pension payments direct from salary, which also avoid a small amount of NI contributions. Your net income will only reduce by ~80% of your additional pension contributions and you can supplement your income from your ISA savings. The second option is slightly more advantageous but it may be a little more difficult to understand. I am not an IFA and there may be other options. What is best for you will depend on your personal circumstances.

[@Andrew-dp5kf]

@@davem.4003 yeah I’m pretty sure I recall something about drawing income from isa whilst SS majority of wages into sipp later on to benefit from the 20% uplift. As I say I’m also sure I read something about moving your isa amount into the sipp too (although I may be conflating the two ideas there) at 48 I’m splitting the two 50/50 between isa and sipp.

[@knobfieldfox]

For basic rate taxpayers, the benefit of saving into a pension is that you get the tax relief every time your pay in, benefit from investment growth on that too, can take 25% of the pot tax free when you cash it in, and if you’re lucky, use the other 75% to buy an annuity that will get taxed at 20%. That annuity will egg paid till you die. If you put money into an ISA, what you pay in has been taxed already, and eventually will reduce to nothing from the point you start withdrawing from it. Also, if you are in a scheme your employer contributes to, your pension pot sill be boosted even more!

[@grahambriggs8338]

Yes, you want to benefit from the compound interest on the tax savings from the date of saving. That 20% is worth a few years of compounding on the base amount immediately.

[@user-zw3bg9vr5g]

I have paid 50 years of tax and National insurance I also got a letter from the Government saying that if I haven’t paid in enough qualifying years I could pay x amount within a certain time to qualify for a full state pension. Now why would I need such a letter if I did not pay anything towards my State Pension as intimated by the young who assume we are all rich Pensioners I get £883 every 4 weeks.

[@user-zw3bg9vr5g]

My advice to the young would be to save and invest your money with help from an advisor. Take out a full life insurance the sooner you do this the cheaper it will be. Never ever cash it in. The more money that you can set aside the quicker you will be able to retire. If you get a State Pension all good. Alternatively you could relocate to live and work in Spain you only need 15 years requirement ,you will get at least 50% of the maximum payout this rises in percentages for each additional year worked .The maximum 2617.53euros per month in Spain .

[@srobertson66]

What happens if you pay tax on your pension as you withdraw it but reside outside of the UK? Can you get a tax rebate the following year?

[@sassasins031]

Speak to HMRC.

[@DeeCee-nb6ev]

Did i miss something? Are the pensions Drawdown or Annuity? How about a comparison with the pensions where you do take the 25% tax free cash after the 20 years, reinvest that (maybe in an ISA) versus the examples given here that are without the 25% cash. A lot of people do still think that their pension pot can disappear however they do seem to confuse the old DB schemes of old with todays scammers which are not the same.

[@DianneSullivan]

I kept things as simple as possible by saying that for each scenario, the money remains invested at 5% target growth when income is taken. So yes, that would be a drawdown as you hand over all or part of your pension fund for an annuity. Thanks for your additional suggestion on the 25% tax free. I do receive a lot of comments that future governments will remove this so I wanted to show the impact without it.

[@DeeCee-nb6ev]

@@DianneSullivan it would not surprise me if a future government of any political persuasion attempted to remove the 25% tax free but that is a potential vote loser. With over 10 million in the NEST scheme now, taking away that right to get back 25% tax free of something you are nigh on forced into (yes i know you can opt out) is not going to win you many votes particularly because as one ages and your pot is bigger you are also more likely to vote than someone younger who has got little. Cancelling the 25% tax free cash would be logical for the Conservatives if they go ahead and attempt to abolish National Insurance as the idea behind that is surely to wind down paying the state pension.

[@testingtimes7924]

The problem with what your saying is that it can only be right in this particular moment in time, assuming that you are even correct in the first place. As an example, could you possibly have predicted that Jeremy Hunt was going to reduce capital gains tax from £12,300 per Annum to the current £3000 per Annum. With an annual CGT allowance of £12,300 most people would not need an ISA.That is the clearest example that I have ever seen about politicians making ludicrous, unpredictable , decisions, in an attempt to pay for the mistakes that they were responsible for. How on earth are you ever going to predict that?

[@markeh1971]

Hi, Hunt cut the allowances for the last 2 years now 6k on CGT. A shocks and shares ISA has no CGT or tax on dividends. Take care M.

[@seamus7054]

And (at the moment) Pensions can be passed on after your death tax free i.e. no inheritance tax.

[@100mountaingoat]

Good video and well explained in regards to the mental block people have over paying tax on pension income. A mix of both ISA (flexibility) and DC or SIPP Pension (6.25% better off for basic rate tax payer and additional benefit of employer contributions for DC) is ideal in my view. I will be using a mix of both as semi-retiring at 53 so accessing ISA first. Just one point - your description of Defined Benefit (DB) pensions is a bit wide of the mark (just referring to scandals and not explaining the benefits and in most cases that they are safest option). I have a mix of ISA/SIPP and DB Pension provision and my DB is by far the best investment I have ever made (1/49th accrual rate, uncapped inflation increases during accumulation and in payment, guaranteed income so not at whim of the markets). DB Pensions are the gold standard if you have access to one (public sector jobs only mainly offer these nowadays so very little risk of scandals).

[@DianneSullivan]

Hey there, Sadly most people entering private sector have no access to DB these days. my comments about DB pension scandals was aimed at people who believe that your employer can do the same with DC pensions. The pros and cons of DC vs DB was out of scope for this video - I’ve made several others on that point but I still fear that people avoid DC and favour ISA investments as they think their employer can’t touch ISAs but can abuse their DC

[@slayerrocks2]

I think that what you are both failing to mention is that safeguards were brought in, as a result of those scandals, and are no longer a risk.

[@wiganer9912]

Is there any benefit to be had from saving into an isa and then in the year before retirement withdrawing it and paying into your pension fund?

[@DianneSullivan]

I’m not sure why you’d do that tbh as you’d be turning a tax free pot of money into a one that’s liable to income tax. Some people do the other way around where they take the 25% tax free portion of their pension fund and put that into an ISA to grow further free of future income tax

[@wiganer9912]

@@DianneSullivan For example, take 10k out of isa and pay it into pension, gov has to add 25% making it 12500, I can withdraw 25% of this tax free and get taxed at 20% on the rest. I have now turned that initial 10k into 10625 after the tax has been deducted. If you scale that up to 60k I have gained 3750.

[@adrianl5899]

If you've the pension allowance available to take from an ISA/savings then it can be financially beneficial, though it highlights the money was likely best put in the pension in the first place in a tax-efficient manner rather than having had to pay income tax/NI to get it in an ISA.

[@andypandy9931]

In my position it concerns me a little when you said the 25% tax free pension withdrawal may be discontinued. I am retired for 18 months and have let my pension savings in place, all be it with a new provider in the hope that it will accumulate some more. It is finally increasing after many years of low returns and Truss government debacle. I have not withdrawn anything but am concerned that the tax free amount could be withdrawn.

[@johnforrest4373]

Could move it to drawdown perhaps and take the 25% out and drop it into ISA. I did that and took no income to preserve contribution allowance should I have went back to work. Only took a small sustainable income last year when the allowance went up to 10k, which would be enough (the previous 4k was to low ). Do recheck the current rules though!

[@wiganer9912]

If it did happen, It wouldn't be done overnight, there would at the very least be some sort of consultation period, so you would definitely have time to consider your options, like for example withdrawing your entire tax free amount and placing it elsewhere.

[@DianneSullivan]

Hey there. I didn't wish to imply that the 25% tax free cash could be discontinued. It's just that no matter what modelling I do, there are always people that point out that things could change. And they are right because there has been lots of tinkering with pensions so I wanted to give this "worst case" example by not including it.

[@andypandy9931]

@@wiganer9912 thanks, I hope you are right. If they withdraw it I would have to act straight away.

[@andypandy9931]

@@DianneSullivan thanks for your reply Dianne. I haven’t needed to use my pension savings yet but would not want to loose the 25% tax free. I think we know we can’t trust our government with our hard earned savings. They are running out of other peoples cash.

[@eddiewatts7792]

And if the employer is contributing then its better still

[@bertibear1300]

Yes it’s true.

[@BaileyMxX]

Did you take into account that William doesn't pay tax on 25% of the income that he takes (25% tax free lump sum which he can withdraw in drawdown? So he'd have his annual tax allowance circa 12k and then also a further 25% tax free on the income drawn above this in drawdown, then tax on the rest?

[@DianneSullivan]

Did you watch to the end? I made that point :-)

[@wiganer9912]

Does this work?..... 1 year before I retire, I take 10k out of isa and pay it into pension, gov has to add 25% making it 12500, when I retire I can withdraw 25% of this tax free and get taxed at 20% on the rest. I have now turned that initial 10k into 10625 after the tax has been deducted. If you scale that up to 60k I have gained 3750.

[@steve6375]

Yes. It assumes you are are already have other income also so 20% is tax on the whole 75% amount with no tax free portion. However, scaled up to 60k, does that mean your income tax threshold now exceeds 50k and so it takes 10k + whatever else you are earning into the higher tax bracket? Also, you cant add 60k in one year unless you are earning 60k in that year AFAIK. If not earning then max is 2880. But i'm not an expert! Also usually some fees involved for a SIPP.

[@wiganer9912]

@@steve6375 Wouldn't be taking the entire 60k out, it would be be left invested in the pension just drawing down what is needed as and when, so I could take out of the £63750 pot the amount of £15937.50 tax free leaving £417812.50 invested, bingo I have just gained £3750 for nothing, assuming this can be done. In the UK, even if my pension pot is 400k I can still take out 100k tax free, my actual income doesn't matter when it comes to the tax free element of the pension. Anyways, I wont be taking the tax free amount in one go I will just be taking what I need and leaving the rest invested, I was just interested to know if the above scenario is possible. It just seems too good to be true that I could gain £3750 just before retirement simply by transferring cash out of an ISA into a pension. Assuming a 0.3% fee on the £63750 when it is in the pension that would be £191.25 so I still gain £3558.50.

[@marton349]

No mortgage or debt.I have a DB pension which estimates say will be worth 118 lump sum and 17k a year. I also have 2k so far into an avc and pay 400 a month into. I also have 12k in a sns isa which I hope to put 15k a year into. Also have a 3k so far sipp which I drip feed 100 a month into. I plan to retire in 10 year. I have no clue other than i hope to have at least 300k to draw from when I retire. My main concern is can I take money from my isa and it will not count towards my yearly invome allowance when i do get my db pension. I want an income of 25k

[@BaileyMxX]

ISAs are tax free so any income drawn from them do not count towards any annual allowance

[@johnforrest4373]

Sounds like your quite well sorted, £17k DB , and say 3% yeild from your 300k so cira £26k without drawing the principle down. I left my DB scheme 2 years before leaving (7 years before NRA) because of future years of the DB scheme at the time being watered down and slightly higher final salary amount on the deffered pension. Went to a company SIPP with an enhanced company contribution for a couple of years. Good to have retired income from multi sources. Even at the large DB buy out amounts offered, due to the low annuity rates, resisted the temptation, on financial advice, and that advice has proved correct. My mix is similar, but DB is a bigger proportion, cause I left early....

[@100mountaingoat]

Yes the ISA has the benefit as being tax free on the point of withdrawal so does not count as income in that sense. You are well set with a good mix of DB, AVCs, SIPP and ISA. The only thing you may want to check is your AVCs as, unless you are getting salary sacrifice benefit and/or getting employer matching when you pay from your salary, it may be more beneficial to direct this money into your SIPP as there tends to be more flexibility in terms of fund choices and the age that you can access your money (AVCs will be tied to your DB Scheme retirement age).

[@slayerrocks2]

You can usually do a partial transfer to a SIPP from a company scheme. I pay AVCs and when my company pension hits 10,000 I transfer and leave just enough in to keep it open. It can take a few weeks to complete, and it makes sense to move the investment to cash first, to speed things up.

[@SkidSolo1]

What happens if the government put up income tax the day you retire do you pay tax on the new rate or the old tax rate thanks

[@clarkeysam]

You would pay at the prevailing rates. Previous rates are irrelevant.

[@markeh1971]

You “only” need 35 qualifying years for the full New State Pension. So just make sure you keep working or earring at least the minimum amount until you reach it. If you worked from 20 this would be 55. If you were in education they take those years off the 35 years. Take care M

[@traciesmobile683]

What about the tax free amount can take out of pension?

[@DianneSullivan]

I talk about that toward the end :-)

[@matthewhunty]

What are the fees on the sip? Or in other words, why are is the pension performing at least one percent better than the isa. You need a stocks and shares ISA? And hopefully you will be capturing the increase in value of the stock market by buying ETFs. Then I believe, taking away the fees your stocks and shares ISA should perform as well as a pension. As long as you’re a 20% taxpayer. Always go for the company pension scheme if they’re paying in it as well.

[@wiganer9912]

For every £1000 you put into an ISA that's all you are putting in. but if you put £1000 into a pension the government also puts £250 so for every £1000 you put into a pension you are gaining another £250 from the government, I believe that both pensions and stocks and shares ISAs have similar fees if you shop around.

[@ftsetradersteve2742]

Pension companies invest your money but for the average man in the street you would be better off paying off your mortgage earlier with the money....Maybe then getting a second property to let out for retirement income....If it is non contributory then that is another thing....

[@RichmOffer]

Have you deducted the 2% annual charge on the pension and 0.5% charge for a isa.

[@BaileyMxX]

Where are you getting charged 2% on your pension? That's really expensive, if you're referring to Nest then it's 1.8% on the initial payment but then over the following year's it's AUM charge is only 0.3% so deducting 2% on your returns on everything in the pot wouldn't be correct at all?

[@adrianl5899]

0.5%, which includes platform and fund costs, is the highest charge I have ever paid on any pension. It would be possible to have an IFA for less than 1% all-in, nevermind 2%. Both pensions and ISAs can be 0.3% or less, including cost of funds, unless picking expensive platforms/managed funds.

[@BaileyMxX]

@@adrianl5899 pretty sure there's an upper limit on what pension platforms can charge for funds as well. So no idea where he's getting 2% from. Unless he's refering to Nests high charges but that's not across the full AUM portfolio so isn't quite correct at all.

[@RabJ208]

You should always consider that pension money isn't intergenerational. In otherwords, if one dies before they reach pension age - that money can't be passed on to loved ones whereas, ISA's can be passed down. What a travisty to pay a percentage of your hard earned money into a pension for 50 years knowing that you or your family will only reap the benefit of it if you survive long enough to collect it.

[@DianneSullivan]

Hi there, I'd just like ensure you're aware that it's only DB (salary linked) pensions that can't be bequeathed - so yes you're right in this case. However these pensions are becoming non-existent in the private sector and most people are now paying into DC pensions. These fall outside your estate for inheritance tax purposes and can be passed on tax free. If you die over the age of 75, your beneficiaries pay tax when they withdraw money, but only at their marginal rate. Hope this clarifies as it's a shame not to be paying into a pension purely because you think it can't be bequeathed.

[@RabJ208]

@@DianneSullivan, That's interesting that workers who are not on a salary throughout their working lives (for example full time supermarket staff, coffee shop staff, factory workers and those on zero hour contracts ) to name a few - should rest well in the knowledge that their pension pots will be passed onto their loved ones (even if they die before pension age). I'll pass that news onto my son and I'm sure he'll be pleased to hear that. Thank you.

[@DianneSullivan]

@@RabJ208 Assuming they are paying into a defined contribution workplace pension then yes - their pots will be passed on. Every workplace pension provider requires nomination of beneficiaries. It's very important that people understand the difference between DB and DC pensions

[@ianwilliamson2980]

what about the pension charges that are high over time.

[@sassasins031]

Mine are £10 per month. You can get lower if you don't have much in your pension pot yet.

[@ianwilliamson2980]

@@sassasins031 well thats over two thousand pounds in twenty years.she should have mentioned this in her figures.

[@ianwilliamson2980]

@@sassasins031 I cashed in my pension this year age 55 I'm invested it between cash isa and stocks n shares ISA half n half so more growth potential with half in a safe place.i dident like the novia pension as lots of charges.i was advised to move it there from standard life but wish I hadn't.

[@hellholehere]

Why should she mention this she was comparing to a stocks and shares isa would have similar charges

[@Gopher31]

LISA beats a SIPP for basic rate taxpayers. You get the same boost to contributions but no payable tax on withdrawal.

[@bitsandblocks7826]

LISA is poor choice over workplace defined benefit pension. Maximum 25% match contribution is £4,000 a year. Assuming £33K salary the 3% employer contribution would match the max bonus on LISA contributions and you'd only be putting in £1,650 yourself at 5% and getting an extra £412 tax relief on top vs saving £1,650 in a LISA gets you just £412. If salary sacrifice you will save NI too. If already maxed out employer contributions LISA might be an option but not before. You'd also have to wait to 60 vs 55 on current rules to access your tax free pot.

[@Gopher31]

@@bitsandblocks7826 True but we are not talking about workplace pensions with employer match here.

[@MrKlawUK]

@@bitsandblocks7826DB schemes are rare and not really in scope of this video. the comment compared LISA to SIPP and was valid. Not all employers offer a match - the minimum is 3% on ‘qualifying earnings’ - on 33k income (your example) 3% is only paid on about £26.5k as you don’t have to pay on the first £6400ish. thats a minimum employer contribution of £780 per year. that caps out at £44k per year no matter how much you earn, so the most an employer is required to pay under the scheme is about £1320 a year. I found this out the hard way after assuming for several years it was 3% of my entire salary… Yes they can offer more, yes they can offer a match, yes salary sacrifice is even more tax efficient. But none of those are the baseline required by law that many employers default to

[@Gopher31]

@@bitsandblocks7826 not talking about workplace pensions here and neither is the video. Workplace pensions with a match are always number 1.

[@antsfur]

Very interesting but 5% per year on an isa is low you can do better than that, investing in fang+ stocks will make much much more even the s&p 500 makes more over 10 years. If you start early with an isa you will do so much better than a pension scheme as no tax to pay and less management fees.

[@DianneSullivan]

Hi there, yes 5% is deliberately cautious. I don't understand your point about fees tbh as you pay fees on ISA investments too (plus platform fees)? True not enough people pay attention to their pension fees but then again if you are with a workplace pension then you need to stay with your provider to get you employer contribution. I see I haven't convinced you that the compound interest gained from 20% tax relief makes the pensions wrapper superior even though you pay tax on the way out. That's a shame.

[@sassasins031]

Past performance is not a reliable indicator. You makes your choices and then live with it.

[@antsfur]

@@DianneSullivan yes I did see your point with the gov. Top ups and I do agree with you on your video, I just thought 5% was a bit low but any figure would do. I pay no fees on my ISA account as I do more than 3 trades a month and no commission on trades either. Thanks

[@BaileyMxX]

Pension is just the wrapper you can invest in the exact same markets and stocks you are referring to with a sipp all whilst taking advantage of tax relief. That way you can still get the very low platform fees. Everyone is scared off by the "no tax to pay" yet fail to see the benefits of the years of compounding on OPM via tax relief top up and employers contributions, both effectively free money. The maths show it time and again to be more beneficial over a long period of time as per this video. There's no flexibility to access which can be a downside to some but it also ensures it's given time to do what it needs to do compound and give you a decent retirement. then the tax free lump sum (although posts maybe moved later down the line) that's without looking at higher tax payers effectively turning £60 into £100 overnight, I challenge you to find many other investments that can dothat

[@kurtsteiner8384]

Isa not worth doing o nly pay 2 or 3 percent max if lucky.

[@BaileyMxX]

Are you only looking at cash ISAs? Longterm global index returns via a stocks and shares ISA have historically returned closer to double digit % returns. Risk free cash ISAs are likely to barely beat inflation.

[@KevinOLoughlin-ys5ef]

In a word it all comes down to "tax". You get tax relief on payments inbound. Morons say "Why pay in 20% only to lose it when you draw out?", the reason is that you use the free 20% relief from the government to boost your pension fund as it builds via compound interest thus that 20% relief ( 40% if you earn more than £52k ) could well be worth a lot more a driver to help your fund grow much bigger. You also avoid inheritence tax with pensions, simply bequeth it in your will. An ISA and property are tangible assets and will be fully taxed at the max rate on death, even more so if you die out-of-estate without a will.

[@aficio698]

Pension rate of return will surely need 2b higher than 5% to account for d associated scheme charges, if this comparison is 2b accurate? 🤓 charges will be applied on d way in and way out. Not all contributors will be financially confident with a SIP.

[@sirius_s2028]

Dont forget employer matching contributions and tax relief on the way in. 25% tax free cash on way out reduces tax on way out also.

[@DianneSullivan]

Yes you’re right. I’ve covered this in other videos but not here. I made William self employed as the level of SIPP utilisation in this group is low. I wanted to demonstrate that you don’t need employer contributions to make it worthwhile - so you’re absolutely right that the real cost of £500 contribution to you is even lower if part of this is from your employer. Thanks again

[@steve6375]

@6:30 and @8:30 why do you keep saying 'extra 20%' when it is actually 25%. Your figures show 25% (500+125=625), It's confusing!

[@DianneSullivan]

Sorry for any confusion, I try to make my explanations as simple as possible. For every £80 you pay in you get £20. £125 is 20% of £625. Or another way to calculate it is that if you pay in £500 that’s 6.25 lots of £80. It’s the other way around ofc if you pay in straight from you gross salary

[@steve6375]

@@DianneSullivan 'For every £80 you pay in you get £20.' - uh - then that's 25% extra! Why are you talking about 20%? Surely what we are looking at is how much we pay in and how much the gov adds. This 20% figure is just confusing and I don't see the need to even mention it. Maybe it is because standard IT rate happens at the moment to be 20% - but that is irrelevant as it can change. If this was an ISA account and the gov gave you £20 for every £80 you put in - would you still say that is 20% extra!

[@DianneSullivan]

Again, sorry if you find this confusing. I will be more careful with my wording in future. The fundamental point remains that if you are only paying into an ISA then it’s harder to make your money grow. I apologise again if I’ve confused you with my explanation.

[@slayerrocks2]

Pay in 1000 costs you 800 from your bottom line. 800 plus 25% = 1000 1000 minus 20% = 800 It is just the way percentages work. If you salary sacrifice, you also save 8% National Insurance. 1000. 1000 minus 28% = 720 720 is the cost to your bottom line when you put in 1000. That works out as a bonus of 39% 720 plus 39% = 1000

[@steve6375]

Sure. I understand the gov are just giving you back the tax you have already paid on your contribution. So a standard rate tax payer will have paid 20pc tax, so to give it back, the gov adds 25pc to your contribution. But it is confusing to talk about 20pc extra. Better to say they are giving you the tax back that you already paid so they top up by 25pc because that is accurate.

[@realist.network]

I suspect an ISA is better even if you aren’t a basic rate taxpayer because the government have control over when you’re allowed your pension. With falling birth rates and a higher life expectancy, if you think the government are going to allow you to have your pension before 65 or maybe even 70, I think you’re being very optimistic. It’s possible I’m wrong though. What does everyone think? How will the government grow the economy and get the “needed” work done if half of the population is retired due to a falling birth rate and higher life expectancy?

[@janettecuthbert2591]

Dianne....Can I take a tax free lump sum out of my workplace pension and pay it into my sip?

[@slayerrocks2]

Your SIPP would be taxable. Why would you want to be taxed on your tax-free amount? You could put it in an ISA.

[@adrianl5899]

If you mean whether or not you can use tax free lump sum to then gain tax relief by putting it into another pension, then you're talking about recycling rules. I would recommend google searching 'Royal London Recycling of tax free cash' which has an easy to follow flow diagram to suggest what it and is not possible. The webpage is for advisors but is free for all to read.

[@chrisfaron]

I'm confused why you didn't do the calculations including the UK state pension which is far more realistic?

[@DianneSullivan]

Because I wanted to show the difference between saving into a DC pension only c/w an ISA only then taking various incomes from it, as I receive many comments from people saying they've opted out of their workplace pension and pay into their ISA only. Yes, I could have included a reduced income based on state pension entitlement. You can use Guiide.co.uk to do this for your personal situation. Any state pension would be income on top of the modelling I've done here and/or require a lower withdrawal from investments to reach targets ofc. I wanted to the impact of DC pensions vs ISAs as simple as possible without needing to take into account the various ages of entitlement for the SP (note the examples start before SP age). Plus people get different amounts of SP depending on how many years NIC they have. Fundamentally, the impact of DC pension vs ISA wouldn't change if you include SP in both. Hope that clarifies

[@waynetalbot2784]

It's wrong to pay tax on any pension

[@steve6375]

But in this case the gov gave you the tax back when you made each contribution

[@ronpeterson-wo7rh]

you made it sounds like you don't pay tax on ISA's when you need money out ? okay, rethought this you paid tax on earnings then pop it into a tax protected ISA, drip feed yourself money when you need it. However if you take out too much a keep it in the bank this will be taxed on any interest so a pension would handle all this for you.

[@slayerrocks2]

Why would you take money out of a tax-free wrapper and earn interest on it (not spend it)? What would be the point?

[@ronpeterson-wo7rh]

Just thinking about things, I agree with what you said, its I've only ever put money into ISA's never taken out so new to this side of the equation, thx for you clarity. 😊

[@slayerrocks2]

@@ronpeterson-wo7rh be sure to enjoy the fruits of your labour. You've earned it. They do reckon that people are seldom prepared for the shock of going from saver to spender. Best of luck getting the balance right.

[@markcherry5474]

A SIPP Pension makes sense. I worry about a DC pension that I have no control over. A fund that will essentially get washed away in an upcoming pension crisis, and that is coming.... Circa 85K is all you are protected up to. It is this non-SIPP arrangement, that I have no control over in an employer pension, that makes me want to go the ISA route. Too much risk over something I have zero control.

[@realist.network]

If I’ve transferred all my old employer pensions into a SIPP, and if I regularly partially transfer my current workplace pension into my SIPP (which I’m going to start doing), does that protect me from the above?

[@clarkeysam]

You do have control over your DC pension, but it sounds like you've not taken control of it. You can decide the fund(s) that it's invested in and you can move them to other organisations. I've changed what fund my DC pension is invested in and I've collated my previous DC pensions into my SIPP. Plus, if you think the 85k protection is too low, then spread your pension around. Have, say, 50k in multiple different providers.

[@100mountaingoat]

Sorry that makes no sense. If you open a SIPP with Scottish Widows, as an example, or you have a DC pension through your employer and they also use Scottish Widows then the "risk" is exactly the same (although there may be differences in fund choices you can invest in). The DC scheme has the advantage of Employer Contributions (ie free money!) so should always be taken if on offer. And what is going to get washed away in an upcoming pension crisis? The only risk is market risk (for investments) and inflation risk (if you have holdings in cash) and this applies to any form of stock market investments or cash savings be they in a pension, ISA or any other form.

[@markeh1971]

Hi the £85k refers to cash only. The shares reside with you and the cash on the platform is cover3d as long as it is below the £85k limit. It applies per banking licence. So Halifax and Lloyds re together. Just need separate accounts and brokerages. Take care M

[@clarkeysam]

@@markeh1971 thanks for pointing that out. I should have, but it was late when I replied.

[@wokeupandsmellthecoffee214]

Just a warning about the fake comments about Juliana Heidi its a scam, do not enter into any conversation our transactin with these conmen, just ignore them.

[@Chriswoodworker]

So you can spread your 25% tax free over multiple years? Not having to take it in one lump sum?

[@DianneSullivan]

Yes

[@lawrencer8673]

No one knows what the future tax rate will be for people who are accessing thier pension in five years time. As the UK population of pensioners is getting bigger & the young working age population is getting smaller tax for pensioners will need to rise....its a sad fact. If the pensioners have to start paying higher taxes more that they received on the money going into thier pension it maybe that an ISA would be better as any money already accumulated could not be taxed if rules change, hedge against pension tax rises in the future.

[@markeh1971]

Rules can always change and often do. ISA still has a lot of advantages. The best is that it includes dividends and profits made in the ISA, so it compounds. Take care M

[@NorthDownReader]

"As the UK population of pensioners is getting bigger & the young working age population is getting smaller tax for pensioners will need to rise" It looks like the mechanism for that change is going to be reducing National Insurance contributions as a proportion of the total tax on incomes. That automatically helps workers as compared with the retired. Then when the overall tax take needs to change it's just tax rates and thresholds.

[@knowledgeseeker5499]

UK infestation of taxes is beyond the imagination

[@slayerrocks2]

​@@markeh1971dividends compound in pensions, too. You can set to reinvest or pay out (within the pension) and choose where to invest your dividends.

[@stephengreen8986]

There is a flaw in your calculations I'm afraid. You are demonstrating pensions for lower rate taxpayers so saving £1500 per month or £18000 per year is impossible for many whose entire income is close to this amount. My experience is that nobody goes from zero to £1500 per month. Even going from £100 to £500 per month is a big change in mindset. Nobody expects to have more coming in during retirement than while working so aiming for 2/3 salary in retirement is more than enough. Many people are scared of saving for retirement. From retirement planning meetings at work the majority refused to think about it and their strategy was a windfall. Most people aren't able, through circumstances to continue to work until retirement. This doesn't invalidate your calculations but it's just not true to life for most.

[@pauls3075]

Where are you getting these scenarios from, not real life thats for sure. Peter v Louise. Peter basic rate taxpayer saving £1,500 per month. So even if he earned the maximum allowable £50,000 per year he would be living on £1,730 per month. Who is in that situation? You have cherry picked to the extreme.

[@DianneSullivan]

As I said, With no mortgage or other debt/ loan repayments and careful budgeting. Many people live on way less than this left over each month. Tough yes, but achievable IMO if you are keen to play catch up

[@NorthDownReader]

"Who is in that situation?" Married people. I was putting the absolute max into my occupational pension for several years before I retired because our mortgage was paid off, and my wife's occupational pension didn't have that flexibility.

[@pauls3075]

@@NorthDownReader So you are saving for 2 people not 1 and you would need to be saving £3,000 per month for the same return.

[@NorthDownReader]

@@pauls3075 My wife was also saving into her pension, just not at the maximum rate. Plus this was the race to the finish - we had been saving into occupational pensions and stakeholders all along. And don't underestimate the effect of paying off the mortgage. Everything changes.

[@bertibear1300]

Buy gold.

[@keithmartland6463]

Hoping to retire in three months, but will have to keep working as the pension is not enough to live on, the small private pension i was forced to take out, i won't be able to touch that as i will still be working, my money and can't touch it! Wonderful! Pensions are a scam simple as that!

[@markeh1971]

Hi, I think I’ll be dust by State Pension Age, not dramatic just health is poor as most people find as they get older. Claiming my small DB pension, working and paying into my SIPP, sort of like a savings scheme. Inheritance tax proof! Treasure every day and Take care M

[@Trina8]

We looked at a pension for a higher rate tax payer. He wanted £1800 a month rising with inflation paid in to get

[@DianneSullivan]

Hi thanks for you comment. A DC pension pot can be bequeathed tax free to your beneficiairies If you die before age 75. I'm assuming you're referring to an annuity or DB pension here?

[@BaileyMxX]

You do realise you don't have to buy annuities right? As a higher rate tax payer, you're literally turning £60 overnight into £100 before you've even invested it, you won't get returns like that anywhere else risk free 🤣 Don't utilise it then you'll only end up paying it in tax instead to the government. Historically longterm the stock market has outperformed real estate. There's volatility ofc in the short term as there also is in R.E. but pensions are long-term. Get 6 months to live? It's terminal? Then you get access to your pension... Die? Then your partner inherits your pension pot, die before you're 75 then that pot to any heirs is tax free? Again everything you're looking at is based on annuities, basically an insurance where they need to win. That's not the only way to do pensions

[@johnforrest4373]

If that's 50% of DB pension to the wife only for 5 years what a mean trust deed! My ones had a five year guarantee and would pay any unpaid out. But they both offer a 50% or 3/8 (pre-TFLS) indexed linked pension for the wife indefinitely.....

[@gillianmillington7735]

enjoy your life and forget about pensions from a68 Year old

[@BaileyMxX]

Yep listen to Gillian and live in poverty relying on a unsustainable state pension in your latter years

[@realist.network]

But then when we get to 60+, we won’t be able to enjoy our lives because we’ll want to retire and we’ll have no money.

[@problemslayer3538]

Can you invest in dividend stocks within a pension fund ?

[@michaewelina7983]

@@problemslayer3538 Depend on pension provider. But you can in SIPP, you can transfer money from your pension fund to SIPP every year ie.

[@ams4328]

If you are waiting until you're 60+ to enjoy your life then you never understood life.