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Aug 2020

Investment ISA vs. Pension: Which Should I Get?

Investment ISA vs. Pension: Which Should I Get?

When saving for retirement, you’ll want to make sure you are getting the best possible benefit out of where you are putting your money away. So, which is better: an Investment ISA, or a pension? 

Both Investment ISAs and pensions are form of long-term savings which can be held in a tax-free wrapper. Both can be used to save for the retirement stage in life, setting you up to enjoy the hard-earned fruits of your years in the workforce.

What’s the difference?

Investment ISAs and pensions are both forms of long-term savings with great tax benefits, but it is important to understand the difference between the two.

An Investment ISA is… also known as a stocks and shares ISA, which allows you to invest money up to a certain amount without paying tax. You can choose to invest your money in various different funds depending on the platform you have chosen. With excellent tax benefits, this is a very popular form of long-term saving. Read more about Investment ISAs here.

A Pension is…a pot of money which you contribute to long-term, throughout your working life, which can then be used at the point of retirement. A pension is designed to have very good tax benefits. Many people have a pension through their employment, however you are able to set up a self-invested personal pension (also known as a SIPP).

The Benefit Breakdown

Benefits of an Investment ISA

  • Tax Benefits 
    The benefits of opening an investment ISA rather than just a standard savings account is that the returns you make on your investments will be kept in a tax-free wrapper, meaning that you will be able to keep the returns safe from the tax man.
  • Flexibility
    Unlike a pension, an Investment ISA has a bit more flexibility. You cannot access your pension before you are 55, however you can access some Investment ISAs before then. In general terms, it’s good practice to ensure you have an Investment ISA bond for at least five years to allow for fluctuations in the market.
  • You can also transfer your fund from an Investment ISA to another kind of ISA account if your needs change – or if you decide that you might need to be able to have access to your funds.
  • Higher interest rates
    Compared to other forms of ISA accounts, Stocks and Shares ISAs boast higher interest rates. This is because there is a higher level of risk associated – the stock market can go down as well as up, so it’s work making sure you are comfortable with this level of risk before opening one.

Benefits of a Pension

  • Automatic Enrollment: with many jobs, your employer will automatically enroll you into a pension scheme.
  • Employer contributions: Your employer will also contribute money to your pension pot, so your savings will be padded by this contribution also.
  • With a standard pension, you won’t have the ability to choose your own investments, however with a SIPP (like a Stocks and Shares ISA) you have more freedom of choice regarding where your money is invested.
  • If you are a higher-rate tax payer, then you will make more money from a pension than if you are a basic rate tax payer.

So, which should I choose?

It’s a false dichotomy: you can have both. Wise investors looking to make the most of their savings for their retirement should make good use of both of these tax wrappers.

Any profits or returns from these are not subject to capital gains tax, so these are an effective way of making sure that you can make the most of your investments.

With this money locked away long term, interest will accrue and build up over the course of the years you are paying into it, meaning by the time you retire and begin to use the money from these accounts they will have made a healthy amount of return.

If you are employed, you’ll likely have been automatically enrolled in a pension. With a workplace pension your employer also pays in a certain percent: this means that you are able to benefit from essentially free money. 

A wise investor will have both - and for the seasoned investor, having more than one pension or ISA (e.g. a SIPP) is an excellent way to diversify your portfolio as well as ensuring multiple accounts which you can benefit from upon retirement.  

Read more about Investment ISAs.

Investment Fund Supermarket ISAs

Stocks & Shares ISA

from Fidelity

ISA Option
Allows ISA Transfers
Regular Savings
  • Protection Scheme: FSCS
  • Fund Choice: Choose from over 4,000 investment options, including one of the widest fund ranges in the UK, plus shares, investment trusts and exchange-traded funds. There’s also expert guidance to help with your investment decisions, which includes a selection of tools and insights from Fidelity’s experts. Capital at risk. Tax and ISA rules apply.
  • Invest From: £25 through regular savings or £1,000 lump sum

Why we like it: Fidelity has lots of investment options, plus an extensive range of guidance tools to help you decide what to invest in. Their award-winning ISA is easy to start and offers great value, their a typical service fee of just 0.35%. Other ongoing charges apply. On top of that, everything is backed by Fidelity’s 50 years of investment experience.

Important: The value of investments can go down as well as up so you may get back less than you invest. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

Tax treatment depends on individual circumstances and all tax rules may change in the future.

Selected ISAs

Stocks & Shares ISA

from Wealthify

ISA Option
Allows ISA Transfers
Regular Savings
  • Protection Scheme: FSCS
  • Fund Choice: Choose your risk profile and have an investment Plan built and managed for you
  • Invest From: No minimum

Why we like it: Choose your level of risk from cautious to adventurous and have a plan expertly created and managed for you. Create multiple plans with different risk levels, Ethical plans also available. Invest as little or much as you like, add regular payments and top up whenever you like. Withdraw money or transfer out without notice or penalty fees. Wealthify app lets you check how your Plan is performing, manage your transactions and provide investment news and insights. Simple annual management charge of 0.6%

Important Risk Information:

The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website aims to provide information to help you make your own informed decisions. It does not provide personal advice based on your circumstances. If you are unsure of how suitable an investment is for you, please seek personal advice.

High Income ISAs

High income ISA ideas:

ISAs Products

Cash ISAs

Fixed Rate & Instant Access ISAs:

Cash ISAs: 

Stocks & Shares ISAs

Types of Stocks and Shares ISA include: 

Stocks and Shares ISAs

Latest News

5 Considerations for Your Next Investment ISA

15th March 2021

You've decided to invest your savings into a Stocks and Shares ISA. You'll be using your tax-free ISA allowance for this year before the deadline, while also investing your money for your future. But what do you need to consider before opening an account? We've put together a list of our top five considerations for you to think about before you click "apply". 

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