By Richard Brazier
director of Hanover financial administration
Hanover is there The Ince Group.
Individual Savings Accounts (ISAs) and annuities each have their own set of rules, and for this reason both are very different in how they work. Is there a right or wrong way to fund your savings and investments, and is there an advantage in using one investment product over the other?
In this article, I wanted to look at two different tax-efficient investment products used for long-term savings. Let’s take a look at an overview of each product to see how they compare:
Why Consider an ISA?
ISAs are the most flexible form of tax-efficient savings plan available. You can access these at any time; However, stocks and shares in ISAs should be viewed as medium to long-term investments (over five years).
Why think about a pension?
If the investment is made for old-age provision (currently from the age of 55), the pension offers the advantageous advantage of tax relief on your payments. Keep in mind that payments to ISAs do not give you tax breaks.
If you are employed and meet the eligibility requirements, your employer must register you with a pension scheme and make contributions to the scheme. These contributions increase your payments and are practically free money.
So what’s best for you?
ISAs offer the most flexible tax-efficient products for your savings or investments because you can access them at any time without having to pay taxes. However, as mentioned earlier, if you use stock ISAs, these are typically held for the medium to long term.
You should consider an annuity for your savings or investments if you plan to use those funds later in life and don’t need to access them before your 55th birthday.
Of course, you can use a combination of ISA and annuities for your savings and investments. This depends on how much money you have available for this purpose. By using both products you get all the benefits of both products and the funds are protected in a very tax efficient way.
With both stocks and stock ISAs and pensions, the value of investments can go down as well as up and you may get back less than you paid in. The value of a cash ISA may not keep pace with inflation.
For more information and advice email Richard Brazier at [email protected]or visit the Hanover website.
*The minimum age for drawing your pension will be raised to 57 from April 2028.
The information in this article is for guidance only and does not constitute financial or legal advice.
If you would like to discuss these products or have any other investment questions, please do not hesitate contact us.