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Pension/ISA Question

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Discussion

Spydaman

Original Poster:

717 posts

163 months

Friday 5th October 2012
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Probably an obvious question but just want to be sure before I do anything rash. I've got a personal pension through work which I pay into, the company tops up and I pay AVC's. I've also got a cash ISA with some money in. I'm coming up 52 and would retire tomorrow if could. Am I correct in saying that if I pay a lump sum into the pension this gets topped up at my income tax rate. If it is why should I keep any money in the ISA (except for emergencies) earning a paltry 3% when I could get an instant 20%. I appreciate it would be tied up until I'mm 55 but that's not long for me. And I could then take out 25% tax free. It seems to me that I should be putting every spare penny into my pension.

Cheib

10,495 posts

80 months

Friday 5th October 2012
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It is true about the income tax relief on contributions.

However, income from a pension is taxed after you take that 25% lump sum. Income from an ISa is tax free.

I think at your age the tax relief on contributions is worth more than the tax free income especially is you are only investing in a cash ISA.

ringram

14,467 posts

153 months

Tuesday 9th October 2012
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Its taxed only if it your exceed your personal allowance smile

Which is higher for old spongers.

Tiggsy

8,701 posts

157 months

Wednesday 10th October 2012
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ringram said:
Its taxed only if it your exceed your personal allowance smile

Which is higher for old spongers.
This - if you get 20% relief now and pay no tax when retired (because your income is too low) then its worth down side of a pension (inflexible, crap annuities, poor death benefits) - but if you will pay income tax when retired then the tax relief is negligible (you do see 25% of it in the form of tax free cash) and the choice between ISA and pension is much closer.

Worth getting some projections on your current pension - because if you do want to retire at 55 you may find (unless your fund is huge) you are going to be a non-tax paying pensioner (which is nice...but in the same league as tramps!)