Can I get hold of my pension?
Q: I'm 33 years old and have a pension of roughly £3,000. I've not made any contributions for a long while, because I don't know what to do with it. Ideally, I'd like to get the money back, so I'm in control. Is there any way of transferring my pension into an ISA?
I'm putting a small amount away each month into a cash ISA but feel I need to get the ball rolling on the pension side. Can you offer any guidance?
Jason Witcombe is an independent financial adviser at Evolve Financial Planning.
A: It's not possible to transfer a pension into an ISA. Under current rules a private pension can be accessed from age 55 but you don't necessarily need to be retired to do so.
ISAs, on the other hand, are accessible at all times. The other main difference is the valuable tax relief you get on pensions. If you are a 40% taxpayer now but will be a 20% taxpayer in retirement, there is a real benefit here as after tax relief it would only cost £60 to put £100 into a pension. While invested, the returns are tax-efficient like an ISA.
When you come to draw the pension you can currently take 25% out as a tax-free lump sum and take a taxable income from the remaining 75%.
But retirement isn't all about pensions. For most people a balance between ISAs for accessibility and pensions for tax relief makes good sense. Cash ISAs are fine for building an emergency fund but over the time you've got until retirement, one would hope a portfolio invested in equities and bonds via a stocks and shares ISA or pension will perform much better.
Just remember that pensions aren't much use if you are saving from a deposit on a house, for example.
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