What is the right investment?

It depends when you need the money, as well as how you are planning to spend it. The best strategy could be a combination of different products, as Rosemary Bigmore reports.

When you are saving for retirement, you want to make sure that as much of the money as possible goes into your pot, rather than to HM Revenue and Customs. But which is the best way to save: a pension or an ISA?

Pension pros
One of the best things about pensions is the tax break you get when you pay the money in: HMRC gives you back all of the tax you have already paid on that money, and this can improve the amount that you are able to save. Another major positive is that you can use pensions to pass money down to your family in a tax-efficient way. Pensions sit outside your estate for tax purposes. And finally, when you take money out of your pension, the first 25% is tax-free.

ISA pros
With an ISA, you don’t get the tax you’ve paid back when you put the money in. But your money can grow in an ISA without paying capital gains or income tax. Plus, you are not restricted about when you want to use the money (except with a Lifetime ISA – you can only withdraw it at 60 or to buy a first house).

Caps and limitations
Both ISAs and pensions have limitations, such as annual limits. You can pay £40,000 a year into a pension (this could rise with inflation) and the current annual limit with an ISA is £20,000. Pensions also have total limits, including a lifetime allowance of £1.05m. Breach this and you will get a hefty tax bill.

Spending your money
Money from your pension and money from your ISA are treated differently when you withdraw them. With a pension, after the tax-free 25%, ax a tax-payer you’ll pay income tax on what you withdraw. ISA money is not taxed, because you’ve already paid the tax on it. In many cases a mixture of both pensions and ISAs and a carefully planned withdrawal strategy will be the best way to save and spend in the long term. Using a financial adviser, who can consider every facet of your particular situation, could help you decide which is the best product for you – or how best to combine them.

When you are saving for retirement which is the best way to save: a pension or an ISA?

The value of pensions and investments – as well as the income they produce – can fall as well as rise. You may get back less than you invested. Tax treatment varies according to individual circumstances and is subject to change.

If you don’t currently have a financial adviser, and would like to have a FREE initial consultation with one of our experts, either:

  • Phone us on 0800 599 9249 to book a meeting to discuss your needs
    Lines are open Monday-Thursday 9am-7pm, Friday 9am-5pm and Saturday 10am-4pm.

  • Visit our page on the value of advice, complete the form and one of our consultants will call you back at a time of your convenience.

We will share your contact details with other Quilter companies that we judge to be most appropriate for your particular needs:
Charles Derby, Quilter Private Client Advisers and Quilter Cheviot in order for them to contact you about products and services. For more information on data privacy please read our Privacy Notice.



Advice will be provided by an appointed representative of Quilter Financial Services Limited or Quilter Mortgage Planning Limited, which are a wholly owned subsidiaries of Quilter plc. Investments may fall as well as rise in value and you may not get back what you put in. Quilter plc products and services are provided through its two divisions: Advice and Wealth Management, and Wealth Platforms. For a list of its companies and their regulatory authorisation details, visit quilter.com. Quilter plc’s business is registered in England and Wales. The content of this promotion has been approved by Quilter Financial Services Limited and Quilter Mortgage Planning Limited. Quilter Financial Services Limited and Quilter Mortgage Planning Limited are entered on the FCA register (https://www.fca.org.uk/register) under reference 440703 and 440718.