Tom Stevenson, Investment Director, Fidelity Worldwide Investment: "There is room for both ISAs and pensions in everyone's long-term savings plans. They have different characteristics which will appeal at different stages of a saver's life, which is one reason why we would like to see more flexibility about transferring money between the two.
"ISAs are very flexible savings accounts, offering instant access, can be a double-edged sword'. It may encourage some younger people to save in the first place but it does open up the risk that savings are dipped into early. Pensions on the other hand tie savings up until at least the age of 55 and then there are restrictions on how they can be accessed. This can be off putting, especially for younger savers, but it does impose a discipline which many people will come to be grateful for in later life.
"One of the biggest attractions of ISAs is simplicity. Although they are built out of taxed income, they grow and can be accessed free of tax thereafter. This can be a real benefit when a retiree seeks to use their portfolio to generate an income. Pensions have the benefit of up front tax relief but they are liable for income tax in payment. The rules around pensions also continue to be tinkered with, and tax relief for higher rate taxpayers is under threat, which sends out an unfortunate mixed message about the Government's attitude to retirement saving.
"The most important thing about both ISAs and pensions, however, is not the tax wrapper savers choose but the fact that they put money aside regularly, even if it is just a small amount. The magic of compounding means that saving for longer has an exponential impact on the size of a saver's final retirement pot."
Paul Kennedy, Head of FundsNetwork Tax Planning: "The pension versus ISA debate is complex and it is probably best not to look as one method being more advantageous than the other but simply accept that these are two ways of saving for the future. Which is preferred will depend upon an individual's tax rate, both now and in the future coupled with their individual objectives and requirements. You should also consider whether your employer is prepared to contribute and if so, whether that is for a pension only. Investments within both an ISA and a pension grow free of any liability to UK tax and here they are similar. Where they differ completely is on when and how you can take your money out and the tax treatment when you put money in and tax treatment when you take you money out. There is no tax relief given on money invested into an ISA meaning that you are investing your net income after you have paid tax on it. However, there is no tax to be paid when you take the money out of an ISA and you can take the money out however and whenever you want at any age. Personal contributions to a pension are made from your gross income (meaning that you get tax relief on the money going in). However, you cannot generally access the money until you are at least age 55. Even then, you cannot access the money all in one go. Some of it can be paid as a tax-free lump sum but the rest has to be paid as an income for the remainder of your life. This income is treated like any other income and is potentially subject to income tax."
Rob Fisher, Head of Marketing for Fidelity's DC & Workplace Savings Business said: "We don't believe that an ISA and a pension are mutually exclusive, in particular when it comes to workplace savings. We are finding increasing numbers of employers are looking to offer both types of schemes to their staff as they offer complementary benefits.
"ISAs offer tax efficiency plus flexible access should the employee need their money - of particular appeal to younger workers but something more senior employees also value. DC pensions are increasingly the main type of long-term retirement savings scheme, and here employees typically benefit from employer contributions plus tax relief. Having both available via the workplace really enhances the savings options for employers looking to attract and retain top talent in their organisations."
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