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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.

Raphael Macharia,

Financial Planner

Financial planning Retirement Planning Tax planning

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	Pension advantage
£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.

Financial planning Retirement Planning Tax planning

Raphael Macharia

Financial Planner

Raphael joined EQ Investors in 2023, bringing over seven years of experience in Financial Services. He holds the Diploma in Regulated Financial Planning, along with certificates in Discretionary Investment Management, Mortgage Advice, Equity Release, and Long-term Care. He believes financial planning works best as a collaborative process, ensuring clients fully understand the strategies in place and feel confident in their decisions. Building clear, trusting relationships and guiding clients through tailored plans is at the heart of his approach. Outside of work, Raphael is a keen runner and football fan, following Chelsea FC.

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