Q CAN you tell me whether I should put my money into a pension or an ISA for my retirement?

A WITHOUT knowing your circumstances and needs I cannot recommend one over the other, but I can compare the main features.

Contributions to a pension receive tax relief which increases the amount invested by 25 per cent.

If you have taxable earnings your contributions can be as high as £40,000 each tax year.

Contrast this with ISA which has a current annual limit of £15,400 and does not receive any tax relief.

You can invest in a wide range of investment assets in pensions or an ISA, although both have differing restrictions on the eligible types.

I hope it is clear that the same initial cash invested in exactly the same fund, in both an ISA and a pension would therefore have a greater potential to grow in the pension.

There are major differences in drawing money out – you may withdraw any money from an ISA without any tax charges and do not need to report this in self-assessment, whereas a pension does not normally allow withdrawals to be made until age 55.

Then the first 25 per cent of a pension fund can be taken in the same tax-free way as an ISA. The remaining money can be taken during your lifetime in income and cash withdrawals but it is taxable as income at the dates you take it.

Pension funds do not form part of your estate on death so are generally considered as Inheritance Tax efficient. If you die before age 75 no Inheritance Tax is due and the pension company will pass your money to the people you nominated. On death after age 75 your nominated beneficiaries will pay Income Tax on any money they withdraw. Whether to invest in an ISA or a pension should be decided on whether either is the most efficient way to achieve your goals.

Warren Shute chartered Financial Planner with Levington Wealth Management warren@levingtonwealth.co.uk