- Topping up your pension income with Isas helps you avoid the 40 per cent income tax rate
- Isas also come in handy for big purchases and early retirement
- Lifetime Isas are a hybrid option but can still be useful
Pensions are the bedrock of most people’s financial plan for retirement, with good reason. Your money grows in a tax-free environment and you receive tax relief on your contributions, so over the years your savings grow more quickly than they would in other types of account. Meanwhile, individual savings accounts (Isas) are better suited for financial goals that require more flexibility and might be shorter-term in nature, such as helping your children onto the housing ladder or buying a new car.
As Rob Morgan, chief analyst at Charles Stanley, sums up: “Pensions offer much greater tax advantages up front, especially for higher-rate taxpayers, but you can’t touch your savings until the age of 55 currently, and this age is set to rise. Isas have fewer tax advantages up front but provide the flexibility to be able to withdraw money at any time tax-free.”