skip to main content
10th
Mar 2020
/

ISA vs SIPPs: Which is Right For Me?

ISA vs SIPPs: Which is Right For Me?

Saving for retirement? You want to make your money work for you long-term. You’ll also want to be making the most of your tax allowances year-on-year. So, which is better for you: an ISA or a SIPP? 

For long-term savers, you’ll be looking for the account which will give you the best long-term returns on your money to save for your retirement.

The best choice for you could be an ISA, or an SIPP – or even both, if you have the cash.

To make it easy for you to make an informed choice, we’ve broken down what each of these accounts offer, so you can judge which of these might suit you and your retirement savings.

What’s an ISA?

An ISA is an individual savings account – which allows you to put your money in a tax-free wrapper. There are various different kinds of ISAs which might suit different needs and stages of life. When it comes to retirement savings, you’ll want to be looking at Lifetime ISAs and Stocks and Shares ISAs.

What’s a Lifetime ISA?

Lifetime ISA (LISA) is a specific form of ISA which is designed to help people save for life events such as buying your first home and retirement. These are available for UK citizens aged between 18-40. There are options within the LISA umbrella, so you can have Stocks and Shares LISAs or Cash LISAs.

You can pay £4000 into a lifetime ISA each year, which the government will pay you a 25% bonus on – which means you have the potential to earn £1000 tax-free in a bonus from the government each year.

This 25% bonus will continue until you are 50.

The £4000 limit counts towards your overall ISA allowance for a tax year – so if you use the whole of your Lifetime ISA allowance, you’ll have £16,000 allowance remaining for other ISA accounts.

Can I access my money?

Yes, but only once you turn 60. At this point you can withdraw your funds without paying any tax or penalty fees. The only other time you can withdraw these funds is when you are buying your first home. If you want to withdraw the money before you’re 60th birthday for any purpose other than buying your first home, you’ll usually face a 25% charge from the government.

What’s a Stocks and Shares ISA?

A Stocks and Shares ISA (sometimes known as an Investment ISA) does what it says on the tin – it’s an ISA where you can make investments.

This is a way for you to invest in funds via a platform, meaning you can hold many different kinds of investments in one place. These are in a tax-free ‘wrapper’ which means that you do not pay capital gains tax or any taxes on returns (interest, dividends or income) from your investments.

This can make your investments easy to manage, and offers a bit more flexibility than a SIPP. 

Can I access my money? 

Some Investment ISAs may allow you to take your money out which depends on the platform, so make sure you check this before opening an Investment ISA. 

The limit you can put into an ISA account changes each tax year. You can only open one type of each ISA each year, and the current limit you can put into an ISA for tax year 2019/2020 is £20,000.

What’s a SIPP?

This is a Self-Invested Personal Pension; it’s a type of pension where you can make your own personal investment choices.

Similarly to ISAs, the returns you make on a SIPPs are tax-free, and have an annual limit on how much you can put into these.

This is known as an annual pension contribution allowance – for the majority of people this is £40,000 per year.

What about tax?

With these types of pensions, you get a ‘top up’ from the Government (called tax relief) – the amount of which will generally depend on the band of income tax you are in.

If you’re a basic rate taxpayer, you’ll get 20% tax relief on SIPP contributions. For those in the higher-rate taxpayer bands could get a further 20% relief additionally, and for those who are in the additional rate taxpayer band you could reclaim an additional 20%. This makes a SIPP an excellent option for higher-rate tax payers.

One key consideration is the amount of money you can put in every tax year and still receive tax allowance.

You can only contribute the amount of money you earn every tax year. So if you earn £20,000 each tax year then you can only contribute £20,000 in order to receive tax relief. If you contribute more than this (perhaps due to inheritance, bonuses etc.)

Can I access my money in a SIPP?

If you put your funds into a SIPP, your money will be locked away until you are retired. Currently, this means you generally won’t be able to access your money until you are 55 – although those who retire after 2028 will not be able to access their money until they are 57.

Once you’re 55 you’ll be able to withdraw 25% of you pensions savings tax-free, but if you withdraw more than a 25% chunk then this will be subject to income tax. 

Read more about Stocks and Shares ISAs and view our rates table.

Read more about Lifetime ISAs and view our rates table. 

Selected ISAs

Stocks & Shares ISA

from Legal & General

Allows ISA Transfers
Regular Savings
  • Fund Choice: Managed, Tracker, Self-Select
  • Invest From: £20 per month or £100 single

Why we like it: Legal & General has over 9 million customers in the UK, and over £1.1 trillion of assets under their management (as at 31st December 2019). Their Stocks & Shares ISA offers a wide range of investment options, whether you want ready-made funds, low cost index trackers, or the ability to pick your own. You can invest up to £20,000 this tax year, with a low minimum of £100 lump sum or £20 per month, and you can manage your account easily online. 

Important: Please remember the value of your investment and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest.

Investment Fund Supermarket ISAs

Stocks & Shares ISA

from Fidelity

Allows ISA Transfers
  • Protection Scheme: FSCS
  • Fund Choice: 2,000+ Funds
  • Invest From: £50pm

Why we like it: Invest from as little as £50 a month or with a £1,000 lump sum. Investment choice from over 100 fund providers, giving you access to 2,000+ funds. One low-cost service fee of 0.35%*. Great service – from investment guidance on website through to UK-based phones team. PathFinder, Select 50, Investment Finder - investing tools for beginners to advanced investors. 24/7 access via online Account Management system. 

Important: Please remember the value of your investment and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest.

Important Information: * depending on how much you have invested

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

New (tax) Year, New You: How to Make the Most of Your ISAs in 2020/2021

6th April 2020

Dawn breaks on the morning of April 6th 2020 – the sun is (potentially shining) and the new tax year has begun. With £20,000 of possibilities for your tax allowance for this new tax year – we’ve answered the most common questions that savers have at this stage. 

Newsletter Signup

Sign up to our Newsletter to get exclusive news and offers direct to your inbox.

About us

ISA.co.uk is a trading style of Fair Investment Company.

We've been comparing and recommending ISAs for many years so you can trust you're in good hands.

About us

4.91 Average

22 Reviews

Jen

I found the way the different options are presented very clear - much more useful than some other comparison sites. I sent it to my daughter as well.

Paul

Very informative, find myself a good ISA account with best return in terms of interest.

Sue

Easy to use website and up to date. Saved the link on my tablet.

Rob Holden

The website was very useful and informative.

Andrew Johnson

ISA can be confusing at first and this site includes a useful and helpful introduction into the world of ISAs

Crowd2Fund

Excellent website - clear and helpful information about different products - and a trustworthy partner.

Sue

Easy to use website and up to date. Saved the link on my tablet.

Steve

Really simple to use and all the information was clear with lots of products available. The interest calculator was really handy too. Have bookmarked and will definitely use again.

Hannah Gordon

This was a really user-friendly site, and was very helpful when it came to comparing accounts and choosing my 2016 ISA.

Sue

Easy to use website and up to date. Saved the link on my tablet.

Anonymous

If you wish to invest in an ISA this site has it all. A super comprehensive range of simply explained products from all the major companies.

Cristina Iacob

Very knowledgeble company with an extensive range of services, a great website with loads of useful information.

Anonymous

Nice graphics and easy to navigate

Dr Alan Rogan BSc PhD FCIOB FCABE Eur Ing

Good advice and professional approach

Razvan

Very helpful for getting my annual ISA

Jonny Doulton

Clear, concise and very professional outfit with an excellent choice of market leading deals.

Paul Tissington

ISA.co.uk not only helped narrow down my choices for a Junior ISA but also provided additional practical information that helped demystify the whole process.

Sunil Karadia

Just the site I needed, I have been looking for a suitable ISA for a while, but as there are so many to choose from, find it difficult to find the right one for me.

James Weatheritt

I found the information on ISA.co.uk very helpful and easy to understand. The site is easy to navigate and find what you're looking for.

Lisa Holden

I found ISA.co.uk very insightful and easy to navigate through. The content was useful and helped me make my ISA decision.

Neta Pourhosseini

I thought the information provided was easy to understand and very informative, I would recommend to friends for deffinite.