By Richard Brazier,
Director of Hanover Financial Management
Hanover is part of The Ince Group.
Individual Savings Account (ISAs) and pensions each have their unique set of rules, and for this reason, they are both very different in how they work. Is there a right or wrong way to fund your savings and investments, and is there an advantage to using one investment product over the other?
In this article, I wanted to look at two different tax-efficient investment products used for long-term savings. Let us look at an overview of each of the products to see how they compare:
Why consider an ISA?
ISAs are the most flexible form of tax-efficient savings plan available. You can access these at any time; however, you should look upon stocks and shares ISAs as medium- to long-term investments (over five years).
Why consider a pension?
If the investment is being made for retirement (currently over the age of 55), the pension provides the advantageous benefit of tax relief on your payments. Remember you do not get tax relief for payments to ISAs.
If you are employed and meet the eligibility criteria, your employer must enrol you into a pension scheme and pay contributions into the scheme. These contributions will boost your payments and are in effect, free money.
So, which is best for you?
ISAs offer the most flexible tax-efficient products for your savings or investment, as you can access them at any time, with no tax to pay. However, as we have mentioned, if you are using stocks and shares ISAs, these are usually held for medium- to long-term periods.
You should consider a pension for your savings or investment if you are planning to use these funds in later life and will not need to access the funds before your 55th birthday.
Of course, you can use a combination of both ISAs and pensions for your savings and investments. This will depend on how much money you have at your disposal for this purpose. Using both products will allow you to use all the advantages of each and the monies will be sheltered in a very tax-efficient manner.
With both stocks and shares ISAs and pensions, the value of investments can go down as well as up and you may get back less than has been paid in. The value of a cash ISA may not keep pace with inflation.
For more information and advice, email Richard Brazier at [email protected], or visit the Hanover website.
*The minimum age to access your pension will increase to age 57 from April 2028.
The information in this article is provided for guidance purposes only and does not constitute financial or legal advice.
Should you wish to discuss these products or have any other investment queries, please do not hesitate to contact us.
Hanover Financial Management Limited is an appointed representative of Culver Financial Management Limited which is authorised and regulated by the Financial Conduct Authority No. 114852. Hanover Financial Management Limited is registered in England and Wales with number 08586887. A list of directors is available for inspection at our registered office: Llanmaes, Michaelston Road, St Fagans, Cardiff CF5 6DU. Culver Financial Management Limited is registered in England and Wales with number 01157569. A list of directors is available for inspection at our registered office: Llanmaes, Michaelston Road, St Fagans, Cardiff CF5 6DU.