Isas take centre stage for retirement

Isas take centre stage for retirement

Almost 60 per cent of advisers have changed their retirement recommendations from pensions to Isas, research from MetLife shows.

The survey, conducted among 107 specialist investment and retirement advisers, concluded that one in six were reluctant to invest in Isas because of accessibility before retirement while 28 per cent were concerned about continuing government rule changes.

Simon Massey, wealth management director at MetLife, believes the lifetime allowance reduction has been a telling factor. “The reduction in the lifetime allowance is going to affect many people on what are seen as mid-range careers and salaries. Over a lifetime, it would be possible to accumulate a million-pound fund, therefore having a good financial plan about how to optimise the balance between pensions funds, Isas and other assets is critical.”

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MetLife said the increased interest in using Isas for retirement planning is driving adviser interest in guaranteed Isa solutions. Its report says more than 70 per cent would like a capital guarantee on Isas that lock in gains, while 73 per cent would support an Isa offering a tax-free guaranteed income for life.

Despite the research, Dean Mullaly, managing director of London-based Mark Dean Wealth Management, said the significant merits of pensions cannot be ignored. “Most will have a personal allowance of £10,600 in the current tax year before they become liable to any income tax, so if all you received was pension income and it was below this level, you would not have any tax to pay anyway. And you would have benefited during your working life from all the tax relief on your contributions while building the pension pot.”

He added both pensions and Isas were vital to retirement planning in order to utilise the various tax benefits.

This April, the lifetime allowance will be reduced again to £1m and the annual tapered allowance will restrict tax-relievable contributions for 45 per cent taxpayers.

But Mr Mullaly believes it would be “wrong” to ignore pensions in light of the regulatory changes. “The reduction in the lifetime allowance will only affect a small percentage of the population and who knows what future governments will do. It would be wrong to avoid putting too much into your pension just because you were concerned with exceeding the lifetime allowance in years to come as, by the time you reach it, the rules may have all changed,” he said.

Volatility also remains a concern for Isa investors, with 24 per cent worried a market crash could erode savings at the point of retirement.

Mr Massey added that unpredictable markets and low deposit rates were proving challenging for consumers, “The poor rates of return on cash Isas are causing people to look around for alternatives, but people still want security.’’