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| Pensions: the best option going? |
Stealth taxes and mis-selling scandals have dented the popularity of pensions over the past decade, so is there a better way to save for your retirement?The UK pension system now faces a radical overhaul, with the state pension age, tax relief, annuities, public sector pensions and the proposed national pension scheme all now under review, creating even greater uncertainty.
Pensions have had a lot of flak lately but they remain a decent investment, says Philippa Gee, managing director of IFAs Philippa Gee Wealth Management. “You still get tax relief on your contributions, and can take 25% of your pot as a tax-free lump sum at retirement. These are both attractive benefits. The drawback is that they aren’t particularly flexible.”
If you are offered a company pension, you should take it, because employers typically make a valuable contribution of between 3% and 5% of salary. But if you have extra money to invest on top, Gee recommends you put it into a tax-efficient Isa instead. “Isas are much more flexible than pensions because you can access your money whenever you wish, whereas you can’t touch your pension pot until you are at least 55, whereas you can access your Isa funds at any time.”
Younger savers might find them particularly attractive, because they aren’t locking their money away for several decades. “You can still roll the money into your pension near retirement, if you choose, and claim tax relief on your contribution.”
Every UK adult can invest up to £5,100 a year into a cash Isa and a further £5,100 into a stocks and shares Isa, giving a total allowance in the current tax year of £10,200. This should be enough for all but the wealthiest investors.
Despite current stock market volatility, investing in stocks and shares rather than leaving your money in cash should ultimately generate bigger returns, says Mark Dampier, head of research at IFA’s Hargreaves Lansdown. “If you’re investing for retirement, you could be putting your money away for 20, 30 or even 40 years. Over such a lengthy period, stock markets should outperform other investments.”
There are thousands of Isa equity funds to choose from, you might need to find take independent financial advice to find the right one for you.
Investing in property is another option, provided you can get finance from mortgage lenders. “The best way to save your retirement is in a mixture of pension, Isas, and possibly a property as well.
The more you diversify, the better your chances of success,” Dampier says. 
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