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ISAs ‘better than pensions’ for retirement income

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A report from financial website has claimed that millions of people in the UK could be better off holding their money in Individual Savings Accounts (ISAs) than pensions.

Many experts have always maintained that the tax relief given to pension contributions make these vehicles the best for drawing a retirement income.

But the report said that the tax that is applied to pension income, once the plan is being drawn, negated the effects of the earlier relief on contributions.

Plus, ISA holders can use their cash at any time and do not have to wait for a stipulated time until they can draw down income.

“It is an interesting exercise to compare pensions with other savings vehicles and to see the true differentials caused by various tax levies at various points in the process,” said retired financial adviser Peter Stanway.

“This report has shown that, although after 20 years of saving the pension pot is larger than the accumulated cash in an ISA, the ISA holder would earn about the same when it came to the annuity income stage of their pension as an ISA holder with an account paying 4.5%.”

However, Tom McPhail, head of pensions research at Hargreaves Lansdown, called the research “superficial”, and pointed out that “they have assumed the best case for the ISA and the worst for the pension”.




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