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18th
Nov 2020
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ISAS vs Pensions

ISAS vs Pensions

When saving for the golden years of your life is wise for anyone who wants to make sure that their retirement will be comfortable and financial stable. ISAs are a great way to ensure that you have some money squirreled away to fund your retirement. Another great way to put your pennies in the retirement jar is to have a pension. How do the two measure up?

What is an ISA?

An ISA is an account that allows you to save or invest your pennies in a tax-free wrapper, so that the returns you make on these kinds of accounts are not charged income tax or capital gains tax.

There are a variety of different kinds of ISA, but when it comes to saving long-term for your retirement, the best options available to you are Investment ISAs and Lifetime ISAs.

So, what are these?

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 Lifetime ISA is…a specific kind of ISA that focuses on long-term saving. There is a limit imposed on how much you can put in a LISA each year (£4000 this tax year), and when this money is put into the account, the government will put a 25% bonus into the account. So, if you put the total limit into the account each year, you could stand to get £1000 back, which is not to be sniffed at. You can only access the money when you turn 55 (e.g. starting to think about retirement) or when you’re buying your first home. 

What is a Pension?

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. 

These can also be known as SIPPs - so if you see this term, you'll know what it's about. 

How do they compare? 

First, we'll look at the benefits of ISA accounts: 

  • LISAs have a pretty unbeatable return rate which make them a very attractive option. You will struggle to find a 25% return rate anywhere else. 
  • While investment ISAs may not offer the same high return, the benefit 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.
  • Unlike a pension or a LISA, 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

And the benefits of Pensions include: 

  • With many jobs, your employer will automatically enroll you into a pension scheme.
  • 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.

Do I have to Choose?

No – you are entitled to have both a pension, a LISA and multiple Investment ISAs. 

You can only open one new Investment ISA each year, and you can only pay into one Investment ISA each year. 

So, if you spread your money across these methods of saving, you can develop a strong financial basis for retirement. 

Read more about Investment ISAs here.

Read more about Lifetime ISAs here. 

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.

* depending on how much you have invested

Special offer:

Invest and get £25 cashback » 

Build your savings with an ISA and receive £25. Exclusions, T&Cs apply.

Important: The value of your investments can rise as well as fall. You may get back less than you invested. If you’re unsure, we recommend you ask for independent advice.

Selected ISAs

Stocks & Shares ISA

from Legal & General

Allows ISA Transfers
Regular Savings
  • Fund Choice: Managed funds tailored for you or choose yourself from over 50 funds
  • Invest From: £20 per month or £100 single

Why we like it: Legal & General can help you save for a brighter future with their stocks and shares ISA. Choose from over 50 funds, including ready-made investment options that spread your money across different investments for you and sustainable funds that seek to make a positive difference without compromising financial returns. Please remember with investments, your capital is at risk, 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: 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 Hargreaves Lansdown

Allows ISA Transfers
  • Protection Scheme: FSCS
  • Fund Choice: 2,500+ Funds
  • Invest From: £25 pm

Why we like it: Choose your own funds or alternatively a ready made portfolio. Market-beating savings and discounts of up to 5.5%. No charge to buy and sell funds. Low, tiered annual charges for holding funds, with a maximum of just 0.45% per annum. Free fund updates and analysis from experienced research team. Invest with a financially secure, FTSE 100 company.

Important: The value of your investments can rise as well as fall. You may get back less than you invested. If you’re unsure, we recommend you ask for independent advice.

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:

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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

Our Top Picks for Technology Stocks and Shares ISAs

19th January 2021

The tech industry has been booming for the past fifteen years; and it seems to be a rollercoaster that only goes up. The tech bubble has yet to burst, with companies coming out with more and more technological developments and consumer demand is certainly not slowing down. So, for the tech-savvy investor who wants to put their pennies behind this strong growing industry, we’ve put together our top three picks for Technology Stocks and Shares ISAs. 

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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.

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