Should I withdraw from ISAs to invest in my pension?
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At Christmas, I spoke to my brother about what pensions we each have. It’s made me realise that I am probably not putting enough aside to have a good retirement. I have money saved in ISAs so I could take that out and put an extra amount into my pension. Do you think that is a good idea?
Jeremy Woodruff of Smith & Pinching responds:
Pensions are certainly a tax-efficient way of saving but I suggest you take a step back and review all your finances before deciding whether to make an additional contribution to your pension fund. Pension planning should never be a scattergun process – you should take the time and trouble to work out what you want to achieve for your retirement and plan accordingly.
You should also bear in mind that you cannot access your pension savings until the minimum pension age which is currently age 55 but is due to go up to age 57 on April 6, 2028, so it may be sensible to leave some of your ISA savings in place as an emergency fund, for example, if you are some way off that age.
I suggest you talk to an independent financial adviser – ideally from a firm of Chartered Financial Planners – and look at the wider picture. This will enable you to build a proper financial plan that will get you to where you want to be at different stages of your life. You can then tweak your plan as and when your circumstances change to keep on track.
If you do decide to make a significant contribution to your pension fund, you should look carefully at the timing. We each have an annual allowance for pension contributions in the tax year which for most people is either 100pc of your qualifying earnings or £40,000, whichever is lesser. If you decide that a contribution of more than that is appropriate for you, you may be able to use unused annual allowance from the previous three years (using the current year’s allowance first), or you may need to split your additional contribution across more than one tax year. Please get advice about this.
There are a couple of circumstances where your annual allowance may be a reduced figure. This applies to those who are particularly high earners and to anyone who has started taking flexible benefits from their pension savings. Don’t leave your financial status in retirement to chance: get advice now and you can have the reassurance that you can achieve the retired lifestyle you want.
Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
For more information, please visit www.smith-pinching.co.uk