Pensions vs ISA’s?

Our Principal Financial Adviser, Michael Garvey, was again discussing Investments, Savings and Financial Advice in Glasgow’s Sunday Herald last week.

On this occasion the topic was Pensions and ISA’s – outlining the reasons why some would choose to pay into a Personal Pension or an ISA. 

With the passing of the 5 April deadline for maximising ISA and pension subscriptions, many customers will be wondering whether they made the right choice in contributing to one rather than the other.

“When planning for retirement, pensions have traditionally been the vehicle of choice for most customers, based on the view that tax relief is the main benefit,” says Michael Garvey of Glasgow Wealth.

“In many cases, the decision will hinge on the investor’s income tax position. Higher rate (40%) and additional rate (45%) tax payers who expect in retirement to return to a lower marginal rate of income tax stand to benefit from tax relief in its current form. However, caution should be exercised here as high earners may fall foul of new legislation limiting the tax relief on pension contributions over certain thresholds.

“Basic rate taxpayers will see less value from the tax relief system in its current form. Broadly, tax relief at source is granted at basic rate where pensionable income allows, and income in retirement may well be taxed at basic rate in retirement – albeit, there is usually the option of a 25% tax free cash lump sum under current legislation. So, basic rate taxpayers will likely see less income tax benefit through the mechanisms of the tax relief system.

“On the other hand, using some or all of your ISA allowance – up to £20,000 in tax year 2017/18 – will attract no tax relief. If preserved until retirement, however, the ISA income -or capital – can be drawn without any income tax consequences. This complementary income in retirement can be valuable, particularly after reaching state pension age when overall income is more likely to be taxed to some extent. Furthermore, ISA rules have not been targeted by zealous chancellors as much as pensions. There has always been one form of tax-efficient, non-pension savings – in the form of ISAs and their predecessors PEPs and TESSAs – that has remained sacrosanct.

In summary, pensions are great if your employer is paying into it, if your highest income tax band will reduce in retirement or if you are self-employed – pensions remain a great way to extract profit from a business. However, with discipline, ISA portfolios can grow to become significant retirement assets, providing tax-free income. As with all aspects of retirement, planning is crucial. Get in touch with a financial expert to discuss your personal requirements.”


For specific Pension Advice, Retirement Planning or to discuss your Savings and Investments, Contact us at Glasgow Wealth Limited, George Square, Glasgow, G2 1EG, 0141 328 3916. Or email us at:


Glasgow Wealth are a firm of Independent Financial Advisers, serving clients in Glasgow, Edinburgh, Ayr, Perth – across Scotland – and UK wide.


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