Both pensions and ISAs offer a tax advantageous way to save for the future; however you may be unsure which the best vehicle for you to save with is. Which type of plan would suit you best essentially depends on how you want to save, and it is important to remember that you are not limited to having just one type product; you can have a pension, stocks and shares ISA and cash ISA if you wish to.
In early age it is important to consider that you will have little access to your pension savings before your 55th birthday, should you ever need them. Younger savers then may favour an Individual Savings Account (ISA) as they may need to access their savings before they reach the state pension age for things such as the deposit on a mortgage. Your specific circumstances will therefore likely affect at what ratio would be best for you to invest in ISAs and pensions.
Are often made available through employers, called workplace schemes these work by contributions being taken automatically from your salary, employers often make contributions as well. Other schemes include; additional voluntary contribution schemes, personal and stake holder pensions, and self-invested personal pensions.
With defined contribution schemes any money you invest into the product is income tax-free, you also benefit from gaining contributions through government income tax relief, based on your tax rate. With workplace schemes contributions are usually taken from the salary of the saver before they receive any tax deductions.
Are a kind of tax-efficient savings account, there is currently two distinct categories of ISA: Cash and Stocks and Shares. Every eligible person is allowed to invest up to their maximum annual allowance in a stocks and shares ISA, cash ISA or a combination of both.
A new kind of ISA is being launched in April 2017 designed to help people save for both their first home and their retirement simultaneously, find out more about it here.
If you would like to find out more about ISAs in general you may also want to read our full guide by clicking here to learn more about their workings:
21st March 2019
Each tax year, there's a limit set by the government to the amount you can save and invest in ISAs: your “annual ISA allowance”. The allowances are intended to reward savers and encourage us to invest more to support our future retirements, without creating a tax haven that can be taken advantage of by very wealthy individuals who just want to avoid paying tax.
Sign up to our Newsletter to get exclusive news and offers direct to your inbox.
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
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.
Very informative, find myself a good ISA account with best return in terms of interest.
Easy to use website and up to date. Saved the link on my tablet.