Determining whether to invest within an NISA or a pension has been distorted due to the drastic changes that have been made to these investment wrappers recently.
Therefore, establishing the right place to save for your retirement can be difficult to decide.
If we begin with pensions, the new rules will allow individuals aged 55 and over to take income from their pension pot whenever they want, and how ever much they wish, whilst still retaining the 25% tax free allowance.
The New ISA rules have allowed individuals to increase the annual allowance to £15,000 and now individuals can invest as much cash into their ISA as they want. The NISA now allows transfer from Stocks & Shares to Cash, enabling clients to reduce risk from asset backed to deposit based.
Considering these changes the main benefits investing within a pension includes:
- Pension contributions can take advantage of tax relief. For example, if you make monthly pension contributions of £500 and are a basic rate tax payer, you will gain an extra £125 per month from tax relief, taking your gross monthly contribution to £625. Higher and Additional rate tax payers can claim a further 20% or 25% via tax return.
- When taking income from your pension pot, 25% of this can be taken out tax free.
- If you die before age 75, your pension can be passed on to your spouse free from IHT tax.
The main benefits investing within an NISA:
- All withdrawals from an NISA are completely tax free.
- The benefits within a NISA can be accessed at any age, whereas the minimum age for accessing your pension benefits is currently 55.
- In the event of your death, your NISA benefits will be able to be passed on to your spouse in the form of an additional NISA allowance.
Therefore, having a range of investment options allows you to take advantage of the different benefits provided by different saving vehicles. Seeking professional help from Independent Financial Advisers can enable you to receive the best investment options in order to provide you with a more efficient saving method either for your retirement or even just for a rainy day.
This is intended for information only and shouldn’t be taken as advice.