Adviser > News > February 2009 > Personal Pensions or ISAs?
Personal Pensions or ISAs?
With interest rates at an all time low, personal pensions are an attractive alternative to ISAs for those clients looking to invest for the longer term.
Clients who are used to receiving favourable returns on their savings may be frustrated with the low interest rates currently available on most savings products.
In depth
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The solution could be a personal pension. By investing in a pension your clients could achieve a return of at least 25% through tax relief alone. A basic rate tax payer investing £1,000 in a pension would see this immediately increase to £1,250.
With tax relief available on contributions up to 100% of salary/earnings (or £3,600 if greater), many clients will be able to significantly boost their retirement savings by moving money from an ISA or savings account into a pension.
When you consider that over £32 billion was invested in Cash ISAs in 2009/101, potentially there is scope for significant sums of money to be redirected to pension plans.
If your clients need instant access to their savings, ISAs still have an important part to play. But for those clients who are close to retiring or don’t need ready access to their existing savings, now could be a good time for them to take advantage of the tax incentives and invest in a pension.
Tell us what you think
With interest rates at an all time low, have you recommended that clients invest some of their savings in a personal pension as an alternative to ISAs?
This can generate potential business opportunities for you, allowing you to demonstrate the value of your advice by helping to increase your clients’ long-term savings.
Personal Pensions Vs ISAs – a comparison
This comparison shows that personal pensions and SIPPs have more tax incentives, exposure to more asset types and can accept larger contributions than an ISA.
This should be balanced against lack of access until age 55, (which means that they are longer term investments for most people.
| Feature | Personal Pension/SIPP | ISA |
|---|---|---|
| Minimum age | None | Cash ISA: 16 Stocks & Shares ISA: 18 |
| Maximum age | None | None |
| Maximum payment | Unlimited – 40% tax charge on contributions above £50,000 p.a. (annual allowance) | Cash ISA: £5,340 p.a. |
| Tax implications | Funds grow free of direct tax on income and capital gains. Tax relief on contributions up to 100% of earnings (or £3,600 p.a. if greater) | Growth/income is free of income tax and capital gains tax |
| Level of access | No access to savings until 55 | Most ISAs offer instant access to savings/investments |
| Level of concurrency | A person can invest in as many pension plans as they want at the same time – full concurrency | A person can only invest in one Cash ISA and one Stocks & Shares ISA in any tax year* |
| Permissible assets** | Cash Equities Gilts and Corporate Bonds Commercial Property | Cash ISA: bank/building society deposit accounts Stocks & Shares ISA: individual shares, Unit Trusts and OEICs |
| * where a person invests in both a Cash ISA and Stocks & Shares ISA the maximum total contribution is £10,680 p.a. (so if £1,000 is invested in a Cash ISA only £9,680 can be invested in a Stocks & Shares ISA). ** SIPPs allow direct investment in the underlying assets as well as through collective investments, such as unit trusts and OEICs. | ||
References to taxation are based on our understanding of the current taxation law and practice and may be affected by future changes in legislation.
How we can help – Pension Portfolio
Pension Portfolio from Scottish Life has been designed so that it can adapt to fit around the needs of almost any client. It offers value for money for those clients looking for a simple and easy to understand pension and substantial investment flexibility for seasoned investors looking for more involvement in choosing investments.
Our Pension Portfolio provides:
- A complete investment solution made up of a combination of core investments and self investments.
- Core Investments that include our unique investment proposition of 9 Governed Portfolios, made up of a different mix of equities, bonds and property, which take into account your client’s term to retirement and attitude to risk. There are also 11 Fixed Lifestyle Strategies to choose from, and the option to create a Flexible Lifestyle Strategy specifically for your client. All of which are reviewed regularly by our Investment Advisory Committee.
- An array of self investments with a fund supermarket, share dealing on an execution-only or advisory basis and all the other permitted investments you’d expect, including UK commercial property.
- Integrated income drawdown facility – Income Release - allowing retirement benefits to be withdrawn directly from your clients' plans at a time and in a way to suit their individual needs.
- A highly competitive charging structure, which means that your clients only pay for what they use.
- Financial Adviser’s Fee (FAF), our pioneering way to make sure that you’re remunerated precisely as you wish to be remunerated for your advice and service.
- A service that really delivers, we continue to invest significantly to develop a service proposition that not only enhances our products but also makes it easy for you and your clients to deal with us.
Conditions may apply depending upon how the Pension Portfolio is to be set up. For example a minimum fund size applies before Income Release can be used.
Find out more
If you'd like more information about Pension Portfolio, please
- contact your usual Scottish Life representative or
- visit www.scottishlife.co.uk/pensionportfolio
Notes
- HM Revenue & Customs, www.hmrc.gov.uk/stats/isa/menu.htm
For professional advisers only
