Case Study: 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.
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 no other income he is a Basic Rate taxpayer.
EQ has developed a unique online tool for demonstrating the relative attractions of ISAs, SIPPs and Investment Accounts.
*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%
|Values in plan
The pension provides an additional return of £6,600.
If Dave was a 40% taxpayer in retirement, the additional return provided by the pension would be reduced to £1,800.