Pensions / Auto-enrolment

[Ardiles]

ISAs are great, but they're accessible. If you've got the self discipline not to spend built up savings then they'd work very well as a retirement fund, after all the income is completely tax free unlike pensions. But people don't and that new computer/holiday/car/house that they want will just come straight out of the pot.

Surely the other difference (which works in the favour of pensions saving) is that contributions in to a pension are tax free - where as contributions in to an ISA are not?  Pensions are taxed on the way out, not on the way in - but it's the other way around for an ISA.  My ISA savings come from my net income, not my gross (as for my pension).

Does any of that make any sense?

[janaage]

Which is exactly why people need 'financial advisers', not people who come round to sell a protection policy or an ISA then you never see them again. A true financial advisers who will see their clients through to retirement. ISA funded pensions could be a great way of taking government risk out of retirement planning but you're right discipline is needed. On your own for some people that could be tough. That's where they need a professional to help when they need a little lump sum to pay for a new car etc.

Look at what people have done with their ppi money, most has been spent today. Same with savings made from low interest rates, spent. A small percentage of people would have taken advantage of the cheap repayment to overpay and build up some equity in a stagnant market.

[Samdy Gray]

Does any of that make any sense?

For someone who's a basic rate tax payer both pre and post retirement there's not a lot of difference. You fund an ISA from net pay and you don't get taxed when you take it back out again. Net effect = nil. Pensions work in reverse as you say, but work out slightly more tax efficient because of the 25% tax free cash.

The tax benefits are better for someone who's a higher rate payer during their working life and a basic rate payer in retirement, both for ISAs and pensions.

[nevillew]

For someone who's a basic rate tax payer both pre and post retirement there's not a lot of difference. You fund an ISA from net pay and you don't get taxed when you take it back out again. Net effect = nil. Pensions work in reverse as you say, but work out slightly more tax efficient because of the 25% tax free cash.

The tax benefits are better for someone who's a higher rate payer during their working life and a basic rate payer in retirement, both for ISAs and pensions.

But if you go down the ISA route, from net pay, your employer's not going to contribute, are they?

[Samdy Gray]

Of course not. Which is another huge benefit of pensions, especially if the employer will match employee contributions above the auto-enrolment minimums. It's essentially free money.

[Ardiles]

Of course not. Which is another huge benefit of pensions, especially if the employer will match employee contributions above the auto-enrolment minimums. It's essentially free money.

Precisely.  To give an example, if your employer matches your contributions, you get an extra £100 in to your pension pot for every £100 you put in yourself.  But then you have to factor in the tax relief you're getting on your £100 contribution, which will be £20 or £40 for most people.  Effectively, that's £200 in the pot for a £60 or £80 contribution.  That's good business.  Certainly, the fund management industry does take too much out of the pot - but on balance, I think you'd be nuts not to go along with something like this if you could afford to.