Isas catching pensions in retirement planning

Isas catching pensions in retirement planning

Isas are gaining popularity as a vehicle in retirement planning. According to research from The Share Centre, 63 per cent of investors use an Isa to save for retirement, compared to 71 per cent that use a pension.

Annuities have fallen as a retirement income option, with just 8 per cent of those surveyed stating that they are planning to buy an annuity when it comes to generating an income in retirement.

The report, which surveyed 1,000 investors with over £10,000 each in investments, reinforced the sentiment that the retirement reforms announced by Chancellor George Osborne last year have affected investors’ views on how they’ll be using their pension into retirement.

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Ian Lowes, independent financial adviser at Lowes Financial Management, said, “Certainly for the younger generation Isas would be on the radar above a pension as they allow access, although this can be dangerous due to the lack of enforced control. That said, the pension changes and freedom of access make pensions a more attractive option for those in their 50s and 60s who are coming up to retirement.

“However, we shouldn’t underestimate the guaranteed income for life in retirement that is offered by an annuity since you don’t know how long you’re going to live. But no one buys an annuity with their Isa, do they?”

When asked what they plan to do with the money in their pension when they reach 55, or if they were already over 55, 42 per cent said they plan to withdraw their money to use elsewhere, rather than continue to let it build in a pension.

Of those surveyed, 11.4 per cent said that they would slowly withdraw it each year and put it into an Isa; 10.3 per cent would dip into to and take out cash lump sums as needed; 8.2 per cent would buy an annuity for a consistent income; 7.7 per cent would opt for income drawdown; 4.1 per cent would put it all in a bank account; and 2.3 per cent were unaware that there had been any changes to pension access.

Sheridan Admans, investment research manager at The Share Centre, said, “As people live longer and with the phasing out of formal retirement at 65, it is likely that retiring is going to be more of a transition event. This is likely to lead to an evolution of investment behaviours for retirement planning.”

The research also encourages workers to sign up to their workplace pension in order to capitalise on enhanced savings and potential tax advantages.

Mr Admans added, “We believe Isas will be used more for additional saving to support income in retirement, with workplace pensions making up the lion’s share of pension saving over time. It is likely that the combination of Isa and pension accumulation will have combined tax advantages through milestones such as the transition stages into retirement, drawdown, and possibly into inheritance planning.”