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More than a third of people saving for their retirement are planning to rely on Individual Savings Accounts (ISAs).

Savers 'Banking on ISAs'

 

May 2017


But should they? ISAs do not attract the upfront tax relief that pensions enjoy. However, unlike retirement savings plans, there is no tax to pay when you cash them in. With pensions up to 25% can be taken as tax-free cash.

According to a study from a leading provider, 34% of savers are looking to ISAs to deliver the majority of their guaranteed income in retirement. Even among the over-55s, who are in the run-up to retirement, more than a quarter are considering using ISAs. The findings highlight the lack of awareness of available options for ISA savers – with more than two thirds saving into a Cash ISA. With just 10% of total ISA savers and more than half of those saving into Cash ISA savers being dissatisfied with their rates, it is important to consider the alternatives. The best fixed-rate cash ISAs are currently paying around 1.75%.

Cash ISAs can be transferred into Stocks and Shares ISAs. However, I think the term stocks and shares can put savers off, assuming that they are high risk. In reality there is a vast range of investment funds that can be held in ISAs including many low risk funds offering potentially much greater returns in exchange for a modest risk.

For those over 55, who can now access pension funds, a pension investment makes more sense than an ISA as tax relief is generally available on 100% of the investment (subject to contribution limits) and 25% is available as tax free cash.

Good independent financial advice will help savers make the best of their pensions, savings and investments both before and in retirement.

Please remember-The value of investments and income from them may go down. You may not get back the original amount invested. Past performance is not a reliable indicator of future performance.

Mark Barr FPFS Chartered Financial Planner / STEP Affiliate