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Pension or ISA...

15 May 2019

1 min read

Pension or ISA – which is best?

At age 55 Dave earns £95,000 per annum and makes a £20,000 (net) pension contribution and a £20,000 ISA contribution.

Owen Catling
Owen Catling,

Financial Planner

Both investments grow at 2.5% per annum in real terms (meaning 2.5% above the rate of inflation and net of charges) over 10 years.

On ceasing work at age 65 Dave decides to draw both investments as a lump sum. As he has other income, he is a Basic Rate taxpayer.

Values in plan Exit values Pension advantage
Pension* ISA Pension** ISA
£32,802 £26,241 £27,881 £26,241 £6,640
 
*Includes £5,000 tax relief claimed through his tax return when he made the original contribution
**25% tax free cash with balance taxed at 20%

The pension provides an additional return of £6,640.

If Dave was a 40% taxpayer in retirement, the additional return provided by the pension would be reduced to  £1,720.

Owen Catling

Owen Catling


Financial Planner

Owen has been working in financial services for over 15 years. He joined EQ Investors in 2018 as an Employee Benefits Technical Consultant and since 2020 has been a Financial Planner. When providing advice, Owen focuses on clear communication, so that his clients fully understand the facts, options, and recommended solutions, enabling them to make well-informed decisions. Owen is a regulated Financial Planner who is working towards Chartered status. Outside of work, Owen enjoys spending time with his wife and three children, cooking, and supporting his beloved Arsenal.

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