Savings account vs Isa vs Pension?

Bishops Stortford IFAs Enable can help you take stock and plan for retirement. The following figures were compiled recently based on £100-a-month saving over 40 years, assuming growth of 5 per cent gross each year. Which we know is currently massively over optimistic.

Saving into a conventional savings account would be the most tax inefficient way to save of the three, but 40 per cent taxpayers would lose out most as they would be taxed more than basic rate taxpayers. It has been calculated that a 40 per cent taxpayer would be left with £91,945 after 40 years of saving into such an account, whereas a 20 per cent taxpayer would have £25,000 more - at £116,486.

Saving into a tax-free cash Isa takes the tax element out of the equation entirely, though given the current lack of decent interest rates on Isas, a 5 per cent growth averaging the next 40 years might seem overly optimistic. Nonetheless, was £100-a-month to be put into such an account over that time, then both basic and higher rate taxpayers would both be left with £148,856.

But it is with pension saving that 40 per cent taxpayers can really see a difference, as the tax relief contributions really accelerates saving levels,  a 40 per cent taxpayers pension pot to £248,099 over the 40 years - and a 5 per cent growth rate is a much more reasonable expectation for a pension pot than for a cash Isa.

Issued by: Enable Independent Financial Life Planners
25c North Street, Bishops Stortford, Herts CM23 2LD
Telephone: 01279 755950 - Fax: 01279 657339
Enable Independent Financial Life Planners is a trading style of Enable Independent Limited is authorised and regulated by the Financial Conduct Authority.
It is important always to seek independent financial advice before making any decision regarding your finances. If you would like any assistance, please contact us.
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