Questions And Answers
ISA or Stakeholder
asked by Emperor Nero posted 3 Years ago at 13:47
Hi, my niece is 19 years old has just started work and will be joining her company's pension scheme where she and her employers will contribute 3% each. I think maybe she should have an additional scheme for say 5% of salary into a stakeholder pension as the government contributes 20% on top of his contribution (am I correct?. she has spoken to an IFA who says an equity ISA would be better. My thoughts are an ISA would need to make 20% just to equal a pension plan based on the tax relief alone. Any thoughts out there TI squad?
1-3 of 3 Answers
Kevin Rhoades answered 3 Years ago at 16:07, last modified: 2 Years ago at 14:56Your niece will need to decide whether she will need to access the money before her anti***ted retirement date. Whilst contributing to a pension plan will benefit from tax relief on contributions, she cannot access it until age 55, and then only partly as a lump sum.
Is she saving for a purpose e.g. property deposit, travel etc. in which case pension contribution would be a no go.
Simon West answered 3 Years ago at 18:02, last modified: 2 Years ago at 14:56You're right your niece will get tax relief on contributions to a personal pension. However at 19 I would imagine she will be contemplating other uses for her money! Firstly she should decide does she want to lock this money away until 55. If she does then your logic about the 20% return required on the ISA is correct. She could invest in an ISA now and if she decides she wants to contribute to the pension later she could make a lump sum pension contribution and get the tax relief then.
Rob Simpson answered 2 Years ago at 17:26, last modified: 2 Years ago at 14:56My opinion lies in favour of your niece's IFA. OK, you get 20% tax relief on money into a pension scheme but remember that the income you take from the scheme at retirement is taxable too. However, if you daughter is a high rate tax payer now and likely to be a lwer rate tax payer in retirement then you can make a case for the pension scheme (40% relief on the way in...20% tax on the way out).
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