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Could ISAs fund your retirement?
Clue: It’s not just about pensions.
Susannah Streeter
Important information - This isn’t personal advice. If you’re not sure what’s right for you, ask for advice. Tax rules can change and benefits depend on personal circumstances. Investments rise and fall in value so you could get back less than you invest. Investment income is variable and not guaranteed.
We already know that pensions are an incredibly tax efficient way of saving for retirement. Depending on your circumstances, you can get tax relief on contributions as you save, and your money is able to grow tax-free. This is why something like a Self Invested Personal Pension should form the cornerstone of most people’s financial plans.
BUT… there’s another way to save tax
An ISA can be a great tax saving partner to your pension. Once you add money to an ISA it can grow tax-free. And here’s the best bit; any income you then generate from your ISA is also completely tax-free.
Watch our video to learn more.
Remember: Tax rules can change and their benefits depend on your individual circumstances.
Which ISA is best for tax-free income in retirement?
The ISA family is a multi-talented one. You can hold more than one type of ISA and take advantage of each of their individual advantages.
Stocks and Shares ISA for retirement income
A Stocks and Shares ISA could be the ideal partner for your pension. Use some or all of your £20,000 ISA allowance to invest and get tax-free compound growth and income. When you’re investing, you should always look to invest for 5 years or more to ride out the peaks and troughs of the market and give your investments the best chance of growth.
The Stocks and Shares ISA at a glance:
Pick your own investments or choose from ready-made investments.
Invest free from UK income and capital gains tax.
Withdraw your money or take income any time free of income tax.
Open or top up from a £100 lump sum, or £25 a month.
Using a cash ISA for retirement
Managing your risk is essential when it comes to retirement income planning. Having some of your money in cash savings is essential to cover things like emergencies or sudden drops in other forms of income such as drawdown.
You may not get the same growth as you would through investing but you will still benefit from compounding on the interest you’ll earn. Choose from fixed-term or any-time access Cash ISA products to suit your needs.
The money you put into a Cash ISA will chip into your £20,000 ISA allowance. But don’t forget, you can use your allowance across Cash, Stocks and Shares, Innovative Finance and Lifetime ISAs. How you spread your money will depend on how much investment risk you’re willing to take.
Our Active Savings service gives you access to a range of cash ISA products and allows you to move your money between them and other savings accounts with ease.
Lifetime ISAs for retirement
If you’re over 40, sadly it’s too late for you to open a Lifetime ISA (LISA). But if you’ve already got one open, you could consider increasing your contributions (within your means and within the £4,000 annual limit) and using it for tax-free income from age 60. Remember, you can continue contributing to a LISA until you turn 50 and you get a 25% top up from the government on your contributions (up to £1,000 per year).
Withdrawing money before age 60, unless it's for buying your first home, will usually result in a 25% penalty.
This website is issued by Hargreaves Lansdown Asset Management Limited (company number 1896481), which is authorised and regulated by the Financial Conduct Authority with firm reference 115248.
The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960), which is authorised and regulated by the Financial Conduct Authority with firm reference 915119. Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money.
Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown (company number 2122142).
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