How ISAs and Pensions Can Work Together

Enjoy the flexibility of ISAs alongside the benefits of having money locked away in a pension

Holly Cook 5 April, 2013 | 10:00AM

All too often the end of the tax year triggers a rush of last-minute investors racing to top up their ISAs in order to take full advantage of their ISA allowance. But putting money in an ISA at the end of the year potentially marks a year of tax-savings lost. Instead, maximise your tax efficiency and make the most of compound returns by putting money to work at the beginning of the tax year. The ISA allowance for 2013-2014 is £11,520, up to half of which can be in cash.

For many, ISAs represent the core of their portfolio; indeed, invest the full allowance each year and if you achieve an average annual return of 6.54% you’ll be a millionaire in 30 years’ time. That’s a long time horizon but it’s not unrealistic for anyone in their mid- to late thirties.

For others, ISAs are an additional investing tool that supplements their pension pot. While the pension (company, SIPP or other) is a closed box—you can’t access your assets until retirement—your ISA can be your ‘unlocked’ box as one of the perks of ISA wrappers is that assets can be withdrawn at relatively little notice. Though you don’t want to withdraw assets unnecessarily it’s comforting to know that you can if you need to.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites

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