Neil MacGillivray of James Hay Partnership is relieved that the Chancellor decided to leave pensions and ISAs alone in his recent budget. He explains why a combination of the two is essential for retirement planning. James Hay Partnership is an investment partner of Wren Sterling.
The zeal of the Osborne era to push for an ISA-centric world at the cost of pensions seems to have some what ground to a halt under Chancellor Phillip Hammond. In last week’s Autumn Budget there was no hint of an introduction to the Workplace ISA and no changes to tax relief on pension contributions. Even the confirmation that the lifetime allowance is to increase in line with CPI to £1,030,000 in 2018/2019 could be seen as ratification to a change in policy.
Resurrecting the age-old argument of pensions vs ISA, the simple fact is that pensions and ISAs should not be seen as in direct competition for retirement saving, but instead as being complimentary to each other. There are few people fortunate enough to be able to fully utilise the £40,000 annual allowance and £20,000 ISA allowance, and for most to put all their savings into just one or the other could be unwise.
With tax relief on contributions, tax free growth, the flexibility to access income from age 55 with up to 25% paid out tax free, and in addition the ability to pass on your pension fund on death in a tax effective manner, has made pensions more attractive than ever.
The ISA, though not benefiting from tax relief on contributions, does allow tax free growth and tax free access at any time. The one point to consider though is that it does form part of the individual’s estate for inheritance tax and when combined with the value of other assets, such as their home, cannot be ignored.
In retirement, for both income tax and inheritance tax planning, taking a combination of income from both pension and an ISA cannot only save tax but can preserve a client’s savings, enabling them to maintain their standard of living longer or to pass wealth on to the next generation.
The demand for advice in this area and the ability to have a client’s savings held together on one platform to help maximise the planning opportunities will only get greater. So here’s hoping that no news is good news and that the benefits of both pensions and ISAs continue.
James Hay Insurance Company Limited (JHIC) (registered in Jersey number 77318) has its registered office at 3rd Floor, 37 Esplanade, St Helier, Jersey, JE2 3QA. IPS, JHAC, JHPT, JHWM, JHWNC, SPTCL, SarumTL, IPS Plc, PAL, STL, UPT and UPTL have their registered office at Dunn’s House, St Paul’s Road, Salisbury, SP2 7BF. JHIC is regulated by the Jersey Financial Services Commission. JHAC, JHWM, IPS, and IPS Plc are authorised and regulated by the Financial Conduct Authority (FCA).